After dismissal of central bank governor … Turkish lira shrinks 17% against dollar

The Turkish lira fell more than 17% against the dollar on Monday in the forex market after President Recep Tayyip Erdogan’s decision to dismiss the central bank governor.

The Turkish currency was trading at 8.47 lire to the dollar Monday morning in Asia, compared to 7.22 lire to the dollar at the end of last week.

The appointment of Shehab Koçioglu, a former banker and lawmaker for the ruling Justice and Development Party, was the third time Erdogan has abruptly fired the bank’s governor since mid-2019.

Governor of the Turkish Central Bank, Shehab Kafcioglu

Gojioglu sought to allay concerns during a 90-minute call with bank chiefs, and a source said he informed them he had no plans to make a sudden change.

Analysts said the new central bank chief supports Erdogan’s view that rising interest rates lead to inflation.

Erdogan’s insistence on avoiding high interest rates has remained a constant in Turkey’s policy. He once described the issue as “the mother and father of all evils” and again stressed last January that he was “totally opposed” to raising interest rates.

In a February article, the new head of the central bank, Kavsioglu, noted that high interest rates “indirectly” lead to higher inflation.

Goldman Sachs and others had expected the lira to fall significantly when money markets start trading on Monday.

Erdogan abruptly sacked former Governor Naji Iqbal in the wee hours of Saturday morning, two days after a sharp hike in interest rates aimed at halting the lira’s decline and countering inflation, which was approaching 16%.

Iqbal took office less than 5 months ago and raised the key interest rate by 875 basis points to 19%, the highest rate of any major economy, and has been lauded by analysts who have said it bolstered the credibility of the central bank.

The source close to the appeal said Koçioglu told bankers in his appeal that any policy change would depend on reducing inflation, which he described as his main goal. The source quoted the new governor as saying that the current approach will continue.