The Turkish president, Recep Tayyip Erdoğan, has ousted Murat Uysal from his post of the governor of the Central Bank of Republic of Turkey (CBRT) after the lira plunged to its record lows of 8.58/USD at a point on Friday. The currency has lost 30% of its value so far this year, making it the weakest performer among emerging market peers. Uysal was previously appointed after Erdogan fired his predecessor Murat Çetinkaya in July 2019 for his reluctance to cut interest rates to prop up the economy.
Erdoğan has described himself as an enemy of high interest rates. He believes in an unconventional economic theory that high interest rates cause high inflation and hence, has repeatedly called for low borrowing costs. Naci Ağbal, who served as Turkey’s finance minister in 2015-2018, will be the new CBRT governor but it remained unclear whether he would be prepared to hike rates. CBRT held rates unchanged at 10.25% in its latest monetary policy committee on October 22, defying expectations for a significant rate increase and causing sharp losses in the lira.
Analysts at Capital Economics last week warned of a full-blown currency crisis similar to 2018 if the central bank refrains from tighter monetary policy. Raising interest rate is seen as the only viable option given the country’s nearly-depleted foreign reserves.
