Home Business News The Turkish lira plunged after Erdogan fired the hawk banker

The Turkish lira plunged after Erdogan fired the hawk banker


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Β© Reuters. FILE PHOTO: A logo of the Bank of Turkey is printed at the entrance of the bank’s headquarters in Ankara

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By Ebru Tuncay and Jonathan Spicer

ISTANBUL (Reuters) – fell 16% to near an all-time low as the market opened after President Tayyip Erdogan made a shocking decision over the weekend to remove a hawk central bank governor and install put a like-minded critic on high interest rates.

The appointment of Sahap Kavcioglu, a former banker and ruling party legislator, in early hours on Saturday marks the third time since mid-2019, Erdogan abruptly fired a central bank chief.

Kavcioglu sought to ease concerns about a sharp sell-off and pivot from a rate hike to a cut in Sunday’s 90-minute call, in which he told bank CEOs he had no plans. Policy changes immediately, a source told Reuters.

But Goldman Sachs (NYSE πŸ™‚ and others predict the Turkish lira and assets will plunge as financial markets open for the week due to the new governor’s dovish and even unorthodox views, and this is considered the latest damage to the bank’s reputation.

The coin is down more than 16 percent at 8.4 against the dollar, from 7.2185 on Friday, back to the level it touched early November when it hit an intraday record of 8.58.

Liquidity is often low in early trading, which magnifies moves. But analysts have been expecting a sharp drop due to Erdogan’s staunch opposition to high rates and policy interference that has hit the major emerging market economy for years.

The latest overhaul could reverse the mainstream and hawkish moves of predecessor Naci Agbal, analysts say, and spur Turkey into a balance-of-payments crisis. Foreign exchange reserves are exhausted.

Erdogan fired Agbal two days after a sharp rate hike to avoid inflation near 16% and the lira depreciating.

In less than five months of work, Agbal raised interest rates by 875 basis points to 19 percent and regained some credibility with policy as the lira appreciated against its dollar. But the coin has returned most of those profits in less than 10 minutes of the week’s trading commencing.

β€œIt will be a long, dark day on Monday,” said a local fund manager.

Cristian Maggio, strategist at TD Securities, has predicted the lira will depreciate 10% -15% in the coming days.

“The overhaul” reveals the erratic nature of policy decisions in Turkey, especially for loose, unorthodox, and ultimately lax (and risk) monetary issues, he said. mainly policies in favor of growth from now on “.

During his call with Turkish bankers, Kavcioglu said any policy changes would depend on reducing inflation, which he said was the primary target, the source familiar with the call said.

The current policy approach will continue, the source added. The central bank was not immediately available to comment.

In an earlier statement on Sunday, Kavcioglu said the bank would focus on permanently reducing inflation, which has been stuck at double digits for most of the past four years.

Formerly a member of parliament of the AKP Party (AKP), Kavcioglu endorsed the unorthodox positions shared by Erdogan. He wrote the high rate “indirectly causes inflation,” in an article last month.

END OF THE WEEK QUESTIONS

Agbal’s most recent rate hike was 200 basis points on Thursday, which triggered a hike of more than 3% lira.

His hawkish stance significantly cut Turkey’s CDS risk measures and began to reverse the year-long trend of local asset abandonment funds.

But after Erdogan toppled Agbal, investors told Reuters they had been working through the weekend to predict how quickly and drastically Kavcioglu could cut interest rates – and how much the currency would retreat. .

The heads of several local treasury divisions made offers estimated up to 8 o’clock on Monday. At Istanbul’s Grand Bazaar on Saturday, a trader said one dollar bought 7.80-7.90 local currency.

Goldman Bank on Wall Street told its customers that they are reviewing investment recommendations and anticipating a “discontinuous” lira and a “preloaded” rate-cut cycle.

An overhaul means capital outflows may emerge and a quick adjustment of current accounts may be needed as markets will stay away from funding Turkey’s chronic deficits, it says.

Economists say fears about central bank independence have exacerbated Turkey’s booming and bankrupt economy, while fueling a policy of unofficial foreign exchange intervention and cost of last year.

The lira has lost half of its value since the currency crisis of 2018.

Kavcioglu said in a statement that policy meetings will remain on a monthly schedule, suggesting any rate cuts could wait until the next scheduled meeting on April 15.



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