The Turkish lira plunged more than 17% against the dollar early Monday in foreign exchange markets, worried about the recent sacking of central bank chief Naci Agbal, a respected former finance minister, by President Recep Tayyip Erdogan.
The Turkish currency traded as high as 8.47 pounds to the dollar Monday early in the morning in Asia, compared to 7.22 pounds to the dollar at the end of last week. She recovered somewhat thereafter, climbing back to 8.09 pounds.
Naci Agbal was sacked late Friday in a presidential decree that did not put forward an official reason, but came two days after a sharp hike in the main key rate by the central bank, a measure to fight inflation hailed by the markets. He had only been in post for five months.
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President Erdogan, a proponent of strong growth fueled by cheap credit, has always expressed his opposition to high interest rates. He thus regularly qualifies them as “father and mother of all evils” and asserts, contrary to classic economic theories, that they favor inflation.
A fight against inflation
Naci Agbal has been replaced by Sahap Kavcioglu, an economist and former ruling party MP, an appointment that worries investors and casts doubt on the central bank’s future independence.
The new governor pledged, as of Sunday, to take the necessary measures to fight against inflation. “The Central Bank of Turkey will continue to use all of its monetary policy instruments effectively in order to achieve its goal of a sustained fall in inflation,” Sahap Kavcioglu said in a statement.
Rising inflation in Turkey in recent years, coupled with the erosion of the Turkish lira, has dented President Erdogan’s popularity. In February, inflation stood at 15.6% year on year.