Turkey’s president dismissed Naci Agbal after just four months in office, after a surprising increase in interest rates.
Turkey’s president dismissed the central bank governor, who in his four months in office won the praise of investors for raising interest rates and promising stricter monetary policies.
In a decree published in the Official Gazette on Saturday morning, President Recep Tayyip Erdogan announced the departure of former Finance Minister Naci Agbal.
He will be replaced by a bank professor who advocated for lower interest rates.
Agbal was hired to lead the central bank after the Turkish lira hit record lows and inflation soared. In his months in office, Agbal had raised the benchmark rate by a total of 875 basis points, working to rebuild the central bank’s credibility after it was hampered by years of unorthodox policies.
Agbal’s most recent 200-point hike on Thursday brought the rate to 19 percent, higher than analysts had expected.
The bank said that the restrictive monetary policy will be maintained until inflation, which reached 15.61%, is controlled.
Erdogan is openly averse to high interest rates, claiming that high rates cause inflation, which is opposed to the dominant economic theory.
He pressured the central bank to keep rates low to fuel lending and growth. Critics say the central bank’s independence has been severely hampered by political pressure.
Erdogan’s decree on Saturday names Sahap Kavcioglu as the new head of the central bank. Kavcioglu is a bank professor and columnist for a pro-government newspaper, where he advocates low interest rates.
Previously, he served as a politician in Erdogan’s ruling party.
Former central bank managers before Agbal burned most of Turkey’s reserves trying to support the currency, while rates remained well below inflation.
A modest recovery in the lira’s value since Agbal’s appointment in November gave the impression that he had won Erdogan’s blessing to keep the rate high for some time to avoid inflation and help the lira’s recovery.
But Erdogan’s distaste for high interest rates remained consistent, with him saying in January that he was “absolutely against” them.
“I know that our friends are angry, but with all due respect, if I am the president of this country, I will continue to say this because I believe that high interest rates will not help to develop this country,” he said.