Central bankers were the rock stars of high finance in the aftermath of the financial crisis of 2008. Their independence and stewardship received high praise.

The independence of the central banks from their governments is generally seen as important because it is a sign that they have the freedom to focus on what matters for their county’s economy without being sidetracked by the political agenda of the day.

Whenever governments interfere with the mandate of their central bank chiefs, observers, economists and markets don’t like it. This is for good reason: Heads of government have every interest in a humming economy — especially before an election. Central bankers have to look further and ensure the economy does not overheat. Their guidelines are reasonably clear cut: An inflation target of 2 percent in the case of the European Central Bank and the Bank of Japan. The US Federal Reserve tends to take employment into consideration as well.

The jostling between US President Donald Trump and Federal Reserve Chair Jerome Powell, who he appointed, is well publicized. Powell incurred Trump’s ire for being too hawkish. Trump will stand for re-election in the 2020 presidential campaign, so it is little wonder that he wants to see the economy running on all cylinders. Prudence is neither the president’s trademark nor his aim during the campaign. Prudence is precisely what central bank governors are all about. The arguments between Powell and Trump are, however, nothing compared to what has unfolded in Turkey over the last two years.

President Recep Tayyip Erdogan intensely disliked the interest rate policy of his central bank chief Murat Cetinkaya. He felt that high interest rates curbed economic growth. He also felt that they were responsible for inflation. The latter is rather unconventional thinking on the part of the Turkish president.

Last August, Turkey faced a currency crisis and Cetinkaya had little choice but to use the interest rate lever, as the situation temporarily caused the currency to slip as much as 40 percent against the dollar. Inflation also exceeded 25 percent temporarily. Under much protestation from the president and his finance minister and son-in-law, Berat Albayrak, the central bank increased the base rate by 6.25 percent in September. By December, the Turkish lira had recovered somewhat, regaining nearly 14 percent of its value against the dollar. Restrictive monetary policy brought inflation down to 15.7 percent and the economy grew again by 1.3 percent in the second quarter of 2019 — this after three consecutive quarters of decline.

The markets will look very skeptically on the sacking of Cetinkaya, especially as there are potentially more troubled times ahead.

Cornelia Meyer

Last month, the central bank refused point blank to lower interest rates despite repeated prodding by the president and his finance ministery.

The base rate of 24 percent leaves the real interest rate at 8.3 percent, which might have left some room for maneuver. Be that as it may, markets value central bank independence from governments and Saturday’s firing of Cetinkaya resulted in a 3 percent fall in the lira. It was not helpful that his successor, Murat Uysal, is seen as malleable.

One can argue that export-driven sectors like agricultural products, manufacturing and tourism benefit from a lower currency. However, Turkey imports fuels, chemicals and machinery, which are all adversely affected. A sliding lira will result in inflationary pressures.

The country can ill afford reputational issues. All three ratings agencies give Turkey a below investment grade rating. Both Moody’s and Fitch label the outlook as negative. While the current account deficit shrank by 14.5 percent year on year in April, the country’s companies still owe foreign institutions about $91 billion in foreign currency debt, according to the central bank. This means that every slide in the exchange rate makes it harder to pay interest and principal on the outstanding loans and heightens the risk of bankruptcies.

All in all, the markets will look very skeptically on the sacking of Cetinkaya, especially as there are potentially more troubled times ahead. The US has threatened sanctions on Turkey should it purchase Russia’s S-400 air defense system, of which delivery is due this month. The firing of Cetinkaya may well be the start of another hot summer for the Turkish economy.

• Cornelia Meyer is a business consultant, macro-economist and energy expert. Twitter: @MeyerResources