Turkey's lira hits record low as three central bank deputy governors dismissed

The currency has weakened about 19% so far this year, driven by concerns about monetary policy

FILE PHOTO: FILE PHOTO: Turkish Lira banknotes are seen in this October 10, 2017 picture illustration. REUTERS/Murad Sezer/File Photo/File Photo
Powered by automated translation

Turkey's President Recep Tayyip Erdogan dismissed three central bank monetary policy committee members on Thursday, appointing two new members in their place and sending the lira to fresh record lows.

Those dismissed were deputy governors Semih Tumen and Ugur Namik Kucuk, along with another MPC member, Abdullah Yavas, according to the Official Gazette.

Mr Erdogan appointed Taha Cakmak as a deputy central bank governor and Yusuf Tuna as an MPC member.

The lira weakened to a record low of 9.1900 against the dollar after the announcement, a loss of 1 per cent on the day. It has weakened about 19 per cent so far this year, driven by concerns about monetary policy.

The MPC overhaul came after the presidency said on Wednesday evening that Mr Erdogan had met Central Bank Governor Sahap Kavcioglu, publishing a photo of Mr Erdogan standing next to him.

Last month the central bank cut its key rate to 18 per cent from 19 per cent, despite annual inflation of nearly 20 per cent, in a move analysts viewed as fresh evidence of political interference by Mr Erdogan, a self-described enemy of interest rates.

Mr Kavcioglu said this week the rate cut was not a surprise and had little to do with the subsequent lira sell-off.

The bank's next policy-setting meeting is on October 21.

Last week, three sources familiar with the matter said Mr Erdogan was losing confidence in Mr Kavcioglu, less than seven months after he sacked Mr Kavcioglu's predecessor, and that the two had communicated little in recent weeks.

Mr Erdogan has made a series of changes to the MPC in recent years. He fired three bank governors in the last two-and-half years over policy disagreements, hitting the lira and badly harming the credibility and predictability of monetary policy.

Headline inflation hit a two-and-half year high of 19.58 per cent in September, while a core measure - which Mr Kavcioglu has been stressing over the last month - was 16.98 per cent.

Mr Erdogan appointed Mr Kavcioglu in March after ousting Naci Agbal, a policy hawk who had hiked rates to 19 per cent.

Mr Erdogan ramped up pressure for easing in June when he said publicly that he spoke to Mr Kavcioglu about the need for a rate cut after August.

Updated: December 02, 2021, 7:59 AM