Turkey’s Erdogan ousts the central financial institution governor as Reuters lira slips

© Reuters. FILE PHOTO: Turkish President Erdogan speaks to members of his ruling AKP during a meeting in Ankara

By Orhan Coskun, Nevzat Devranoglu and Daren Butler

ANKARA / ISTANBUL (Reuters) – Turkish President Tayyip Erdogan sacked the central bank governor Murat Uysal on Saturday and replaced him with ex-finance minister Naci Agbal.

The decision to replace Murat Uysal gives Turkey its fourth central bank governor in five years and could spark long-standing criticism of political interference in monetary policy.

The presidential decree was announced in the Turkish official gazette early on Saturday morning and gave no reason for the surprising step. However, several officials close to the matter said Uysal was blamed for the lira’s nosedive, which is doing worst in emerging markets this year.

“The rise in the exchange rate has exceeded expectations very quickly. Some steps should have an impact, but that did not happen,” said a senior official.

Analysts said that while Agbal is a close ally of Erdogan’s, it is seen as a capable manager who could take a more orthodox political approach. This could alleviate the concerns that caused the Turks to rally hard currencies to record levels.

“Uysal’s leadership was utterly disastrous. Agbal certainly couldn’t be worse. He had a reputation for being a decent technocrat,” said Timothy Ash of BlueBay Asset Management on Twitter. “Agbal is actually qualified for the job.”

The lira remains concerned about the central bank’s depleted foreign exchange reserves, negative real interest rates, monetary independence, and the risk of Western sanctions on Turkey’s foreign and defense policy.

Analysts also fear that US-Turkey relations could be more strained if Democrat Joe Biden defeated President Donald Trump in last Tuesday’s highly competitive election, where the vote count is ongoing but Biden’s path is overturned.

Turkey, a G20 country and the largest economy in the Middle East, recovered from a recession last year due to soaring domestic credit and government support for the lira – until it was badly hit by the COVID-19 pandemic.

The lira closed at 8.5445 against the dollar on Friday after hitting a record low of 8.58 despite the dollar’s weakness as votes were still counted in the US election.

Erdogan had appointed then Deputy Governor Uysal as head of the central bank in July 2019 after firing his predecessor Murat Cetinkaya. He said the bank did not cut interest rates to stimulate the economy.

ERDOGAN AGAINST HIGH PRICES

Erdogan, a self-described enemy with high interest rates, has repeatedly called for lower borrowing costs. Last weekend, he said Turkey was waging an economic war against those pressuring it in the “triangle of interest, exchange rates and inflation of the devil”.

Agbal was Minister of Finance from 2015 to 2018 when he was appointed Head of the President’s Directorate for Strategy and Budget.

An official from Erdogan’s ruling AK party said Agbal was facing a “difficult test” in his new post, but he was a “strong name” that could help ease some of the pressure on the lira.

“We will see a stronger central bank governor,” said the official, adding that Agbal “will act wisely”.

He was not seen as someone who would accept political instructions, the person added. “It is a difficult task, but steps must be taken to stop the exchange rate rising rapidly.”

The decline in the lira, which was accompanied by an inflation rate of nearly 12% and well above the bank’s target of around 5%, has put pressure on tighter policies. Last month, the central bank defied expectations for a sharp rate hike and held policy steady at 10.25%, causing the lira to fall sharply.

The bank, which also surprised markets a month earlier when it raised rates, said it would stick to liquidity measures to tighten the money supply. The top interest rate in its corridor, the late liquidity window, was raised from 13.25% to 14.75%.

Erik Meyersson, chief economist at Handelsbank, said while Uysal took the blame for Turkey’s economic troubles, it was Erdogan who “tied” the bank’s hands, adding that the post of central bank governor was “bare.” Puppet show “.

Opposition parties criticized the move, saying it would strengthen Erdogan’s influence and politicize the bank.

“We just missed a party-linked central bank, and we got it. The central bank is now the AKP,” said Tahsin Tarhan, a lawmaker for the main opposition Republican People’s Party.

Agbal will pass its first major test on November 19 when the bank’s monetary policy committee meets.

“Agbal is a realist. He knows the market dynamics. His feet are on the ground. He must have been given a promise for a room. He’s not an amateur enough person to otherwise be in that position,” said the executive Officer .

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