The currency traded on Monday at around 8.12 per US dollar, weakening around 12% on Friday. It had fallen further against the dollar earlier in the morning.
The fall of the lira came after Erdogan sacked Turkish central bank governor Naci Agbal by presidential decree early on Saturday. Agbal had served less than five months in office. He was replaced by Sahap Kavcioglu, a professor in the banking sector and a former parliamentarian from the Erdogan Justice and Development Party, known as the AKP.
“The resignation of central bank chief Agbal over the weekend could deal a fatal blow to investor confidence in Turkey,” wrote Win Thin, global head of foreign exchange strategy at Brown Brothers Harriman, in a research note on Sunday.
In Agbal’s five months at the helm of the central bank, he defended his economic reforms and independence. And just two days before his resignation, he raised interest rates by 200 basis points, to 19%, higher than expected.
In delivering this “hawkish surprise”, “Abgal’s days” were numbered while he found himself receiving the ire of President Erdogan, “wrote Win.
“After regaining investor confidence with a series of aggressive rate hikes, Turkey plucked the defeat from the clutches of victory,” he added.
Win said the consequences could even push the lira to 8.58 per US dollar, the highest ever, and may “even exceed it”.
Erdogan believes in a heterodox approach to monetary policy based on keeping interest rates low to avoid inflation. Kavcioglu, the newly appointed head of the central bank, advocated similar approaches. He was a member of parliament at the AKP from 2015 to 2018 and wrote columns for the pro-government newspaper Yeni Safak.
“At this point, it doesn’t matter who is Agbal’s replacement or what they say, as it is clear that Erdogan is running the show,” said Win.
– John Defterios contributed to this report.