Turkey’s president Recep Tayyip Erdogan fired the governor of the central bank on Friday just three months into his four-year term and two days after an interest rate rise imposed as the bank fought to tame inflation.
Naci Agbal, a former finance minister, had increased the benchmark interest rate by a cumulative 875 basis points since taking the helm in November, breaking with his predecessor’s policy of keeping borrowing costs low despite double-digit inflation. Most recently, the bank raised rates on Thursday twice as much as the market had expected, to 19 per cent.
Agbal’s pledge to steer Turkey back to orthodox monetary policy had won plaudits from investors, who last year dumped Turkish assets and sent the lira tumbling to record lows amid worries about Erdogan’s growth-at-all costs policies.
The increases had steadied the lira until it began weakening again in mid-February in a wider sell-off of emerging market assets as US bond yields climbed.
The Official Gazette published a presidential decree saying that Agbal has been replaced by Sahap Kavcioglu. He is a former lawmaker from Erdogan’s party and a columnist at Islamist newspaper Yeni Safak, according to Turkish media reports. The overnight appointment is likely to erode fledgling hopes among investors that the bank would assert its independence from Erdogan.
Kavcioglu becomes the fourth Turkish central bank governor since 2019. Erdogan fired both of Agbal’s predecessors before their four-year terms expired. He has long demanded that interest rates stay low, subscribing to an unusual theory that high interest rates cause inflation.