The Turkish lira hit a record low overnight after President Recep Tayyip Erdogan ordered a new round of layoffs at the country’s central bank.
In a nightly decree published hours after his meeting with Sahap Kavcioglu, the bank’s governor, Erdogan removed two deputy governors.
One of them, Ugur Namik Kucuk, was the only member of the bank’s seven-member monetary policy committee to oppose a rate cut that shocked international investors last month, according to two people familiar with the matter.
“He was the one who voted against the rate cut decision, so it’s a shame for him and for the country,” said a banker from Istanbul.
Kucuk was also against the controversial policy of selling the bank’s foreign exchange reserves to prop up the lira, the banker added. The policy started in early 2019 and lasted until the end of last year.
The second dismissed deputy governor, Semih Tumen, has been the subject of reports that he might be appointed to succeed Kavcioglu.
The president also removed Abdullah Yavas, a longtime member of the monetary policy committee who had been criticized in Turkish media for living in the US.
The lira, which was already under pressure due to the strong US dollar and investor concerns about Turkish economic and foreign policy, fell 1 percent to TL 9.19 per dollar in overnight trading. The currency has suffered for a number of years and has lost 59 percent of its value against the dollar since the beginning of 2018.
In early European trading on Thursday, the lira stood at TL 9.14 against the dollar.
Erdogan, who has ruled Turkey for nearly two decades, has gained unprecedented control over the nominally independent central bank in recent years after taking steps to consolidate his own power.
The president, an opponent of high interest rates, has clashed with a number of governors as he tried to prioritize high growth at all costs – including rising inflation. He has fired the central bank governor three times since mid-2019 and fired a number of other officials.
The lira came under pressure last week after Reuters reported Erdogan lost confidence in Kavcioglu, who was appointed in March despite cutting the bank’s key interest rate to 18 percent last month when the annual inflation rate was 19 percent.
The President’s communications chief denied this claim, and the meeting between Erdogan and Kavcioglu on Wednesday announced by the presidential office was interpreted by investors as a sign of support for the governor.
Kucuk was a well-known figure in the international financial world. As a former chief economist at the private bank Garanti, he often took the lead in answering questions from foreign investors in monthly phone calls. Market participants were surprised by his absence from a meeting held last week.
Taha Cakmak, a former official with the state-run Ziraat Bank and the Turkish Banking Authority, has been appointed as the new deputy governor. Yusuf Tuna, an academic at Istanbul Business University, has been appointed to the Monetary Policy Committee.
Hakan Kara, who was the central bank’s chief economist until he was fired in 2019, said that after the layoffs there was “no trace of institutional memory” left on the monetary policy committee. But he added that it was “no longer necessary anyway” because interest rate decisions were no longer made by the bank itself.
Piotr Matys, a senior FX analyst at In Touch Capital Markets, said the reshuffle “strengthens Governor Kavcioglu’s position.” He predicted further rate cuts would come, fueling further lira losses and fueling inflation.
“If the lira were significantly overvalued, a rate cut would be a justified strategy,” he said. “However, this is not the case. At a time when global raw material prices are high and could continue to rise, Turkey needs a stable or even stronger currency. “
