President Recep Tayyip Erdogan abruptly sacked former central bank chief Naci Agbal who like the president is an outspoken critic of tight monetary policy.
Turkey’s economy faces major problems, from the budget deficit to inflation to the current account deficit to the exchange rate. The lira has slid nearly 10 per cent and stocks and bonds have fallen sharply after since the dismissal of Naci Agbal, who had raised interest rates to combat double-digit inflation.
Credit rating agency Moody’s said that Erdogan’s ousting of the central bank governor would likely lead to a reversal of capital inflows to Turkey and renew pressure on the exchange rate, leading to higher inflation.
Foreign investors have said the latest upheaval at the central bank, less than five months into Agbal’s term, have erased hopes that the governor can pursue policies free of political pressure.
Economists have urged the Turkish government to outline how it will curb inflation under the new central bank governor who has argued that high interest rates cause inflation, a view that contradicts mainstream economic thinking.
In his first comments since sacking Agbal, Erdogan did not mention the former governor. He reiterated his confidence in the Turkish economy and urged Turks to cash in their gold and invest their savings to shore up financial markets roiled by his abrupt decision to sack the central bank chief.
Similar calls for domestic investment were made during previous periods of economic tumult, including in a 2018 currency crisis sparked by fears about Erdogan’s foreign and economic policies.
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