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A money exchange in Istanbul seen in 2018
A Turkish currency exchange pictured during a lira plunge in 2018Image: picture-alliance/AP Photo/L. Pitarakis

Turkey tries to control market plunge as bank chief sacked

March 22, 2021

Turkey's currency has plummeted against the dollar after President Erdogan fired market-friendly central bank chief Naci Agba.


The Turkish lira plunged in early trading Monday, following a decision by President Recep Tayyip Erdogan on Saturday to fire central bank governor Naci Agbal

Erdogan's move pushed the lira down as much as 15% against the dollar from Friday's rates. The lira managed to quickly recover some of those losses after Finance Minister Lutfi Elvan assured markets that Turkey was committed to free market rules and to a liberal currency exchange regime.

The Istanbul stock exchange briefly paused trading on Monday morning after its main index fell by more than 6%.

"There will be absolutely no move away from the free market mechanism," Elvan said in a statement, adding that Turkish macroeconomic policy is focused on securing a "permanent drop" in inflation. 

What caused the plunge?

Agbal was replaced by Sahap Kavcioglu, a former banker and ruling party lawmaker, who shares Erdogan's unorthodox view that high interest rates fuel inflation.

Erdogan favors interest rate cuts, while the market generally favors interest rate hikes to curb inflation. Currencies tied to a high inflation rate tend to depreciate in value over time. Turkey's inflation rate is currently at a relatively high 15%. 

Analysts told Reuters news agency that Kavcioglu could likely reverse the interest rate rises Agbal had implemented to shore up Turkey's capital account and dwindling foreign reserves.

Foreign investors have also been rattled by what they consider as increased political control in Turkey over the market. Kavcioglu will be the third central bank chief abruptly installed by the president since mid-2019. 

In a statement on Sunday, Kavcioglu tried to reassure markets that the central bank is committed to fighting inflation.

The bank "will continue to use monetary policy tools effectively in line with its main objective of achieving a permanent fall in inflation," Kavcioglu said.

jm/wmr (Reuters, AFP, dpa)

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