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Turkish Lira slumped as Erdogan fired the central bank governor

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Miguel A. Rodriguez
Miguel A. Rodriguez
24 March 2021
The Turkish Lira snapped out of its latest gains after Erdogan replaced the hawkish central bank governor with a high-interest rates critic

The Turkish Lira plummeted 15% against the US Dollar after the country’s president, Recep Tayyip Erdogan, decided to oust Turkey’s central bank chief Naci Agbal.

Erdogan’s decision surprised the markets, giving that Agbal tried and succeeded to restore the central bank’s credibility, Lira strengthening during his four-month presence in office; when he was appointed, the Lira had already lost more than a quarter of its value. Agbal’s policies to deal with soaring inflations made the Lira the best carry-trade currency this year, bringing capital to the Turkish markets. Shortly after his appointment, foreign investors purchased a net $4.7 billion worth of stocks and bonds. At the same time, the Turkish banks spent more than $100 billion of foreign reserves to support the Lira, which prompted Turkish opposition lawmakers for a judicial probe into the official reserves.

Sahap Kavcioglu is Agbal’s replacement, a supporter of low-interest rates, and Erdogan’s theory that “high-interest rates would indirectly open the way to increasing inflation.”Kavcioglu pledged on Sunday to use policies meant to deliver permanent price stability. Despite his promise, analysts believe that Agbal’s removal will continue to negatively impact the Lira, which could even return to the record-low levels reported when Agbal took office.

USD/TRY traded at 7.8645 in Istanbul, just a few percentages shy of the lowest point reported on November 6, 2020.

Sources: Bloomberg.com, cnbc.com

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.