Turkish President, Recep Tayyip ErdoganThe governor of the country’s central bank was removed from his post after the lira hit its lowest level, after losing 30% of its value since the beginning of the year.
The decision to replace Murat Uysal as governor was issued by a presidential decree and announced in the country’s official gazette early Saturday. It was not immediately clear why Uysal was expelled.
The lira closed at 8.544 against the US dollar on Friday, after a record high that touched the lowest level at 8.58, despite the dollar’s weakness as votes are still being counted in the US elections.
Erdogan appointed Uysal, then deputy governor, to head the central bank in July 2019 when he sacked his predecessor Murat Chetinkaya amid the president’s frustration that the bank had not lowered interest rates to boost the economy.
Erdogan, who has described himself as an enemy of high interest rates, has repeatedly called for lower borrowing costs. Last weekend, he said Turkey She was fighting an economic war against those who were pressing her in the “devil’s triangle of interest, exchange rates and inflation.”
However, Turkey was at risk of an all-out currency crisis Like the one she experienced in 2018 Unless the central bank adopts a tighter monetary policy, Capital Economics warned this week.
“Foreign exchange reserves are precariously low and are declining,” Capital said. Turkey’s total external financing needs are still very large due to the huge short-term external debt of the banking sector.
“We have become increasingly concerned that the Turkish central bank will not undertake the monetary tightening required to boost investor confidence.”
Naji Ajbal, Erdogan’s ally as finance minister from 2015 to 2018, will be the new ruler, but it is not clear if he is prepared to raise interest rates.
Turkish newspaper Milliyet reported on Thursday that Finance Minister Berat Albayrak has ruled out intervening to support the lira, stressing the government’s concerns that raising interest rates could harm the economy.
At the last MPC meeting on October 22, the central bank bucked expectations for a major rate hike and kept the interest rate steady at 10.25%, causing severe losses in the lira.
The bank, which also surprised the markets a month ago when it raised interest rates, said it would continue with liquidity measures to tighten the money supply. It raised the higher interest rate in its corridor, the delayed liquidity window, to 14.75% from 13.25%.
However, the lira continued to decline despite those measures, losing 30% against the greenback this year, becoming the worst performing market in emerging markets.
The downward trend towards the lira stems from concerns about potential Western sanctions against Turkey, depleted reserves, hyperinflation, and political interference in monetary policy.
Analysts are concerned that Turkish relations could be damaged if Democrat Joe Biden becomes president of the United States.
