Sahap Kavcioglu
Photographer: Mustafa Ciftci / Anadolu Agency / Getty Images
Photographer: Mustafa Ciftci / Anadolu Agency / Getty Images
Two days after a higher-than-expected increase in interest rates, Turkey’s President Recep Tayyip Erdogan dismissed the country’s third central bank governor in less than two years and replaced him with a lower-rate defender.
Erdogan fired Governor Naci Agbal, who was appointed in November, and gave the job to Sahap Kavcioglu, according to a decree published after midnight on Saturday in the Official Gazette. Agbal’s abrupt withdrawal came in the wake of a 200-bp increase in interest rates by the central bank on Thursday, double what was expected in a Bloomberg survey.
Agbal took over as Turkey’s leading banker after weeks of falling lira and increased the one-week reference repurchase rate by 875 basis points accumulated since then, increasing the central bank’s impaired credibility among investors. Erdogan, who supports an unconventional theory that high rates cause inflation, has often punished the central bank for years when he thinks he is setting borrowing costs too high.
Kavcioglu is a bank professor at the University of Marmara, Istanbul, and a columnist for the pro-government newspaper Yeni Safak. The newspaper criticized the latest interest rate hike by the monetary authority on its front page on Friday, saying that the decision “turned a deaf ear” to Turkey’s 83 million inhabitants, would hamper economic growth and benefit mainly “landowners”. hot money in London “
Turkish pro-government newspaper beats central bank rates high
Interest rate
In a column published by Yeni Safak on February 9, Kavcioglu said it was “sad” to see columnists, bankers and business organizations in Turkey seeking economic stability with high interest rates at a time when other countries have negative rates.
“The central bank should not insist on high interest rates,” he wrote. “When interest rates in the world are close to zero, raising interest rates here will not solve our economic problems. On the contrary, it will deepen them in the period ahead. “
He also supported Erdogan’s heterodox theory of the relationship between interest rates and inflation, saying that raising interest rates “would indirectly pave the way for rising inflation”. Most central bankers and economists around the world believe the opposite is true and would argue in favor of raising interest rates to try to control excessive inflation.
Growth boost
Kavcioglu later assumes that the pace of inflation accelerated for the fifth month in February to almost 16%. The currency suffered one of the worst hits among peers as US Treasury yields climbed, falling more than 7% since mid-February and increasing Agbal’s requests to support the market at higher rates.
Despite the recent decline, the lira strengthened by around 18% during Agbal’s brief term as expectations increased that he would return to more orthodox monetary policies and resist political pressure for lower borrowing costs.
The government’s growth momentum in 2020 saw the currency weaken by 20% against the dollar, keeping consumer inflation in double digits throughout the year. But the economy grew by 1.8%, despite the impact of the coronavirus pandemic and associated blockages, and grew 5.9% in the fourth quarter, faster than all other countries in the Group of 20 except China.
Turkey should abandon restrictive monetary policy and focus on supporting investment, exports and employment that contribute to growth, Kavcigolu said in a recent column. “We have to give up interest rate hikes and bring borrowing costs, which directly affect investment and production costs, to reasonable levels,” he wrote in Yeni Safak on March 9.
Booking Policy
Kavcioglu, who is also a former legislator for the ruling Ak Party, defended reserve policies run from 2018 to 2020, when Turkey began spending its foreign currency reserves to try to sustain the lira in times of volatility. It also borrowed tens of billions of dollars through swap agreements with commercial creditors.
Turkey’s total gross reserves, including gold and reserves held by the central bank on behalf of commercial creditors, fell 20% last year until Agbal’s appointment to $ 85.2 billion, while net foreign exchange reserves fell more than half to US $ 19.6 billion.
The use of the central bank’s foreign exchange coffers at the time helped to control inflation, interest rates and the exchange rate, Kavcigolu said. Economists at Goldman Sachs Group Inc. estimate that interventions exceeded $ 100 billion last year alone.
(Updates with economic scenario, eighth paragraph markets)