Turkish economy faces new turmoil following surprise reception of central bank governor by President Recep Tayyip Erdogan, adding another chapter to years of unpredictable economic policy that scared foreign investors and possibly sowed the seeds of a financial crisis.
Last Friday, Mr Erdogan replaced Naci Agbal with Sahap Kavcioglu, a former member of parliament for Erdogan’s Justice and Development Party, who was publicly in favor of the president’s demands to lower interest rates, all and that inflation reached 15.6% annually in February.
Mr Erdogan, who has fired three heads of central banks in less than two years, prefers low rates as part of a strategy to boost growth.
He opposed the policies set by Mr Agbal, who raised interest rates in an effort to fight inflation and help Turkey withdraw from the brink of crisis. Mr Agbal’s policies have encouraged investors to invest billions of dollars in the country since he was appointed in November.
Mr Agbal’s dismissal on Monday sparked one of the worst-selling one-day assets denominated in Turkish lira as investors reduced their exposure to the currency. The lira fell 7.5% against the dollar in a single day. Kavcioglu has tried to reassure markets by saying it would curb inflation, but has not said whether interest rates will change.