Turkey’s currency dropped after President Recep Tayyip Erdogan fanned further uncertainty over monetary policy by sacking the deputy governor of the central bank 10 days after dismissing its head.
The currency fell 1.2 per cent by afternoon dealings in London on Tuesday to TL8.30 against the US dollar, leaving it near the lows of about TL8.41 hit during a day of chaotic trading last Monday that was fuelled by Erdogan’s firing of Naci Agbal as chief of the central bank.
Central bank deputy governor Murat Cetinkaya, who had worked at Turkish banks and brokerages as well as at the Istanbul stock exchange before joining the central bank in 2019, was dismissed by a presidential decree published in the Official Gazette after midnight on Tuesday.
He will be replaced by Mustafa Duman, who was general manager of a unit of Morgan Stanley in Turkey, according to the central bank and his LinkedIn profile.
Several local and foreign investors said they did not previously know of Duman, with one Istanbul-based executive describing him as a “mystery”. Duman did not respond to a message seeking comment on his appointment.
Murat Kubilay, an independent financial analyst based in Ankara, said he expected the deputy governor would have relatively limited influence on the direction of monetary policy. “What matters is the governor, and the rest just automatically follow suit,” he said.
Erdogan this month fired bank governor Agbal who had increased the country’s policy interest rate by a total of 8.75 percentage points since taking the post in November. A former finance minister, Agbal had promised tight monetary policy to curb double-digit inflation and rescue the lira from historic lows.
Sahap Kavcioglu, an academic and newspaper columnist, succeeded Agbal and has signalled that he shares Erdogan’s view that high interest rates drive inflation, contrary to mainstream economic theory. He has indicated that he will not undo Agbal’s policies immediately, but the Turkish lira has lost about 14 per cent of its value since the unexpected shake-up on worries that Kavcioglu will face pressure from Erdogan to cut rates to encourage more borrowing.
On Wednesday, Kavcioglu promised to continue tight monetary policybecause of the inflation outlook that shows prices are expected tocontinue rising and said that the bank’s policy rate would remain higher than inflation, Bloomberg reported.“We are strictly committed to reducing inflation to the targeted levelof 5 per cent. To achieve this target, we will use monetary policyinstruments in the appropriate way,” Kavcioglu told the central bank’sgeneral assembly.
However, underscoring the sense of concern among analysts and investors, Goldman Sachs said at the end of last week, “the latest personnel shifts at the [central bank] have increased both our and investors’ concerns of a premature cutting cycle and less orthodox monetary policy in Turkey”.
The Wall Street bank expects the lira to tumble to TL9.75 against the dollar over the next year, which would mark a depreciation of about 15 per cent from current levels.
Erdogan has yet to offer an explanation for Agbal’s dismissal. On Monday, he called on investors to return to Turkey, saying they would “reap the same gains” as those who had invested in the past.
Cetinkaya, who sat on the rate-setting committee, is not believed to be related to the former central bank governor of the same name. That Murat Cetinkaya was fired in July 2019. Kavcioglu is the fourth governor in less than two years.
Other senior economy officials have left posts this month. The chief executive of the stock exchange’s operator and the general manager of Turkey’s biggest lender, state-run Ziraat Bank, both stepped down, and Erdogan fired the head of the Turkish wealth fund.