Turkey’s economy is facing new turmoil after President Recep Tayyip Erdogan’s surprising overthrow of the central bank governor added another chapter to years of unpredictable economic policy, scaring foreign investors and possibly sowing the seeds of a financial crisis.
Last Friday, Erdogan replaced Naci Agbal with Sahap Kavcioglu, a former member of parliament from Erdogan’s Justice and Development Party, who publicly supported the president’s calls for lower interest rates, despite inflation reaching 15, 6% per year in February.
Erdogan, who sacked three central bank presidents in less than two years, prefers low rates as part of a strategy to spur growth.
He opposed the policies set by Agbal, who raised interest rates in an effort to fight inflation and help Turkey recover from the brink of crisis. Agbal’s policies have encouraged investors to dump billions of dollars back into the country since he was appointed in November.
Agbal’s dismissal on Monday triggered one of the worst sales of Turkish lira-denominated assets in a single day, with investors reducing their exposure to the currency. The lira fell 7.5% against the dollar in one day. Kavcioglu tried to reassure the markets by saying he would control inflation, but did not say whether interest rates would change.