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The currency was trading at around 8.12 per US dollar on Monday, weakening about 12% from Friday. He had slipped even more against the greenback earlier in the morning.
The lira’s fall came after Erdogan sacked Turkish central bank governor Naci Agbal by presidential decree early Saturday. Agbal had worked less than five months at work. He was replaced by Sahap Kavcioglu, a banking professor and former parliamentarian from Erdogan’s ruling Justice and Development Party, known as the AKP.
“The shocking dismissal of central bank chief Agbal over the weekend could deal a fatal blow to investor confidence in Turkey,” wrote Win Thin, global head of foreign exchange strategy at Brown Brothers Harriman, in a research note Sunday.
During Agbal’s five months as head of the central bank, he defended his economic reforms and his independence. And just two days before his dismissal, he raised interest rates 200 basis points to 19%, higher than expected.
By delivering this “hawkish surprise” Abgal’s days were numbered as he found himself at the end of President Erdogan’s wrath, “Win wrote.
“After regaining investor confidence with a series of aggressive rate hikes, Turkey snatched defeat from the jaws of victory,” he added.
Win said the fallout could even push the lira to 8.58 to the US dollar, the all-time high, and could even “surpass” it.
Erdogan believes in an unorthodox approach to monetary policy based on keeping interest rates low to avoid inflation. Kavcioglu, the new central bank chief, has defended similar approaches. He was an AKP member of parliament from 2015 to 2018 and wrote columns for the pro-government newspaper Yeni Safak.
“At this point, it doesn’t matter who Agbal’s replacement is or what they say because it’s clear Erdogan is running the show,” Win said.
– John Defterios contributed to this report.
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