March 21, 2021

Turkish Central Bank governor changes for the third time in two years

categories : banking

President Recep Tayyip Erdogan announced the departure of Naci Agbal He is to be replaced by a banking professor who has argued for lower interest rates

ANKARA: Naci Agbal, the third Turkish Central Bank governor in two years, was dismissed by Turkish President Recep Tayyip Erdogan late on Friday with no official reason given.
In his post to announce the dismissal, Agbal thanked Erdogan, with his message considered by some as veiled criticism against the president.
He was replaced by Sahap Kavcioglu, a former banker and parliamentarian from the ruling Justice and Development Party, who is known for his staunch opposition against high interest rates.
Erdogan shares his view, calling them “the mother of all evil.”
Kavcioglu became the fourth central bank governor appointed since July 2019.
Agbal’s attempts to restore monetary discipline in the country were praised by international investors.
He was dubbed as “the brave banker of Ankara” by The Economist magazine, which praised him as having “breathed new life into his country’s currency and bolstered the bank’s reputation.”
Erik Meyersson, a Stockholm-based senior economist at Handelsbanken, tweeted: “Closing the People’s Democratic Party, exiting the Istanbul Convention, pivot to Egypt, sacking the Central Bank governor. These are not isolated events. Is this the point where Erdogan finally throws what little of Turkey’s democratic, albeit illiberal, institutions are left and goes full autocracy?”
Agbal — a market-friendly figure — governed the bank for just under five months, and was dismissed just a day after he imposed a much-needed but bigger-than-expected interest rate hike — by 200 basis points to 19 percent — to restore the lira currency.
This decision sparked heavy criticism from pro-government outlets on Friday, which urged for a policy based on credit-fueled growth.
Timothy Ash, a London-based senior emerging markets strategist at Bluebay Asset Management, predicted that “Kavcioglu will try cutting rates and that markets will punish him and he will end up having to hike rates far higher than Agbal would have done.”
Kavcioglu, a government loyalist and a columnist at the pro-government Yeni Safak newspaper, penned several articles claiming that rate hikes create inflation, and that the Central Bank should not insist on a high interest rate policy.
Between 2002 and 2015, Kavcioglu held the deputy CEO post at state-owned Halkbank, which currently faces an incoming trial in May with charges for helping Iran evade US sanctions.

BACKGROUND

Naci Agbal — a market-friendly figure — governed the Turkish Central Bank for just under five months, and was dismissed just a day after he imposed a much-needed but bigger-than-expected interest rate hike.

On Friday, Yeni Safak newspaper attacked Agbal by blaming him for benefitting London-based “hot money speculators.”
However, this crucial change at the country’s monetary authority may bear risks for pushing Turkish economy into another turmoil.
“Kavcioglu is close to Erdogan’s son-in-law Berat Albayrak. Therefore, his appointment also hints that Albayrak and his clique are back to pull again the strings on the economic policy-making front,” Wolfango Piccoli, co-founder of Teneo Intelligence, told Arab News.
“No institutions are left in the country with any independence and authority,” he added.
A cabinet reshuffle is also expected to be announced this week, with speculations running high that Albayrak will be returning to the government as the vice president.
The latest surveys by polling companies that have been indicating a significant decrease of support for the ruling government are known to have pushed Erdogan to renew its cadres.
“While foreign investors have poured roughly $4.5 billion net into Turkey since Agbal’s appointment, the locals never switched their foreign exchange savings to Turkish Lira,” Piccoli said.
Turkish lira gained its value about 15 percent against the dollar since the appointment of Agbal in November, and it stands at 8.63 against the Euro.
However, the reaction of the forex markets to this latest change is expected to be shown by Monday.
Turkish inflation also maintains its upward trend in February, with annual inflation rate standing at 15.61 percent.

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