President Tayyip Erdogan sacked Naci Agbal on Saturday, replacing him with Sahap Kavcioglu, a former member of parliament for Erdogan’s ruling AK Party (AKP) and a critic of tight monetary policy.
Agbal, appointed less than five months ago as the fourth governor in five years, had drawn market plaudits by lifting the policy rate by 875 basis points to 19%, the largest increase of any big economy. On Thursday, he made the latest such hike in a bid to control inflation, near 16%, and a dipping lira.
“There remains a misunderstanding within Turkish leadership with respect to the limited monetary policy space the government has to prematurely loosen rates with rising inflation,” Dennis Shen, director of sovereign and public sector at Scope Ratings, said in emailed comments to Reuters.
“Turkey simply should not aim to emulate the ultra-low-interest policies of advanced economies with reserve currencies when the value of lira itself faces a crisis of confidence and inflation is elevated at nearly 16% – more than three times the objective.”
Under Kavcioglu, a weaker lira, rising inflation and elevated credit growth were unlikely to be met with the same proactiveness in the central bank’s response, said Shen.
“Instead, Turkey’s significant macroeconomic imbalances may return to being exacerbated rather than counteracted by central bank policy,” he said.
A return to unorthodox monetary policies was credit negative for Scope’s assessment of Turkey’s B foreign-currency ratings, said Shen. Turkey was already on “negative outlook”, he said. (Reporting by Tom Arnold. Editing by Mark Potter)