The Turkish lira has demonstrated that it is heavily impacted by President Recep Tayyip Erdogan’s latest move. It opened much lower during the early trading sessions after the Turkish leader dismissed the Central Bank of Turkey’s governor, Naci Agbal. Erdogan has terminated the Turkish central bank chief last Saturday, who was merely three months into his term, per the report posted online by the British daily newspaper Financial Times.
We find this forex news astounding. We believe that this shake-up in the Turkish government is likely to erode investors’ hopes of a more stable economy and Turkish lira. Based on the news posted online by forex trading news website ForexLive, President Erdogan dismissed Agbal following an interest rate hike. Since his appointment in November 2020, the former central bank governor had increased the benchmark interest rate by a cumulative 875 basis points to 19 percent.
Agbal’s measure aimed to help the Turkish lira recover as investors witnessed signs that Turkey was heading towards a more orthodox monetary policy. Nevertheless, such a step was reportedly against Erdogan’s perspective that higher interest rates cause, rather than address, inflation. The Turkish leader demanded that credit remain inexpensive to promote economic expansion.
Agbal gave his reaction to his dismissal in a tweet. He cited that he wants to say his “thank you” for his termination from duty. The former Central Bank of Turkey governor’s sacking came merely two days following the respected former finance minister had garnered plaudits from the market through hiking interest rates by 200 basis points. Agbal has maintained that he aimed to support the Turkish lira and tame inflation.
The Turkish lira had strengthened by approximately 18 percent since Agbal’s appointment as the central bank’s chief. He vowed to restore the central bank’s credibility. We believe that the Turkish lira’s lower opening is the markets’ adverse reaction to Mr. Erdogan’s move. His termination of Mr. Agbal demonstrates that all of the power in Turkey rests with him. With this observation, we believe that it will result in rate cuts and merely make the Turkish inflation dilemma even worse.
In his previous job, Mr. Agbal had served as finance minister. The Turkish lira became a popular trade upon his appointment as the Central Bank of Turkey’s governor almost four months ago. He was attempting to fight inflation with the hike move.
We believe that Mr. Erdogan made an impulsive decision and he should not perform this measure again next time. Let us just wait and see in the next few months how Mr. Agbal’s replacement, ex-lawmaker and banking professor Sahap Kavcioglu, would perform and how he can help the plunging Turkish lira and the Turkish economy get back on their feet.