Turkish president sacks central bank governor

Turkish president sacks central bank governor
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Turkey's central bank governor Murat Uysal, shown in July 31, 2019 picture, has been sacked as the nation's currency continued to fall. (REUTERS/file photo)
Turkish president sacks central bank governor
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A merchant counts Turkish lira banknotes at the Grand Bazaar in Istanbul, Turkey. (REUTERS/File Photo)
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Updated 07 November 2020

Turkish president sacks central bank governor

Turkish president sacks central bank governor
  • Lira has lost more than 30% of value

ANKARA: Turkish President Recep Tayyip Erdogan has sacked the central bank governor and appointed a former finance minister to the post.

Murat Uysal was fired amid an historic freefall of the Turkish lira, which has lost more than 30 percent of its value against the dollar. One dollar was worth TRY8.54 as of Friday.

It is the second time in 18 months that Erdogan has fired a central bank governor. Uysal’s predecessor, Murat Cetinkaya, was sacked by presidential decree in July 2019.

Uysal’s dismissal is likely to undermine perceptions about the bank’s independence in monetary policies that fail to shore up investor confidence if the new governor, Naci Agbal, does not address market expectations.

Uysal faced harsh criticism from the markets for not hiking up interest rates.

Erdogan is known for preferring low rates to stimulate economic growth, and he also believes that Turkey is fighting “an economic war” against the “devil’s triangle of interest and exchange rates and inflation.”

Agbal, who has been head of the presidential budget office since 2018, was Erdogan’s finance minister between 2015 and 2018.

All eyes are on him for the announcement of new monetary policies, with a key committee scheduled to meet on Nov. 19. 

During its last meeting on Oct. 22, the central bank dashed hopes for a big interest rate hike and held its policy rate steady at 10.25 percent, which resulted in the lira’s nosedive. 

Timothy Ash, a London-based senior emerging markets strategist at Bluebay Asset Management, said Agbal was a capable hire and a respected technocrat.

“He is well known by investors and markets,” Ash told Arab News. “The question is whether he will be allowed to do the job as he sees fit.”

But raising interest rates does not appear to be on the government agenda for now, with Finance Minister Berat Albayrak on Thursday ruling out an intervention to support the lira.

“Turkish Central Bank’s credibility is now so badly undermined that it is not just about changing the governor. They need to revamp the entire board,” said Ash.

The persistently high inflation rate, which remains in double digits, and a sharp decline in the country's foreign currency reserves are also sources of concern for investors. The Turkish lira was recently listed as the worst performer in emerging markets, overtaking the Brazilian real.

According to Berk Esen, a political scientist from Sabanci University in Istanbul, Uysal’s sacking was yet another sign of the growing personalization of power at the hands of Erdogan.

“After the adoption of the presidential system in 2017, the political and economic spheres have become inseparable, with the result being that political concerns dictate management of the Turkish economy,” he told Arab News, adding these were strong signs of crony capitalism emerging in the country.

“In recent years, the central bank's autonomy was abolished and many capable economists had to either resign or be forced out from the institution. Under Agbal's management, the central bank will come under more intense control by the president's office. Uysal has become another scapegoat figure for the government's poor economic management.”

Another expert remarked that the problem with the Turkish economy was not related to who led the central bank, but the country’s overall institutional set-up.

Wolfango Piccoli, co-president of Teneo Intelligence in London, said that Agbal’s nomination would not mark a departure from the monetary policy driven by ‘Erdoeconomics’ in the past 18 months.

“Erdogan’s grip on power is now much stronger and most institutions - including the central bank - have been significantly weakened since then,” he told Arab News. “Agbal has been the head of the Presidency Budget and Strategy Office during a sharp degradation of Turkey’s budget balances.”

He added that Agbal had no central bank experience.