Turkish Lira collapsed after Erdogan’s decision

The Turkish Lira collapses on the currency markets, losing more than 15%. This comes after President Recep Tayyip Erdogan liquidated the governor of the Turkish central bank. The replacement former parliamentarian Sahap Kavcioglu. The Turkish currency lost more than 15% at the end of last week.

Mr. Agbal, who was in office for five months, was fired on Friday after the Central Bank registered a rise in its main interest rate to 19%. However, a presidential decree did not specify the reason. Markets hailed the move to raise rates, taken to fight inflation.

President Erdogan, a supporter of solid growth fueled by cheaper credit, has always opposed high-interest rates. He usually considers that they aggravate inflation.

Unacceptable decisions in Turkey

Kavcioglu was a former MP for the ruling party. Because of this, investors are worried as it raises questions about the central bank’s future independence. The new governor pledged on Sunday to take the necessary measures to combat inflation. The Central Bank of Turkey will continue to use all its monetary policy instruments effectively to achieve its objective – lower inflation, Kavcioglu said in a statement. The rise in inflation in recent years and the erosion of the Turkish Lira have diminished President Erdogan’s popularity.

Before Agbal, investors often criticized the Turkish monetary authority as too slow to respond to risks. Most recently, in August, the Lira lost about a quarter of its value.

Agbal’s raising rates to counter the soaring inflation made the Lira the best carry currency this year, bringing capital into Turkish markets.

Investors enter the markets

The Turkish Lira tumbled to an all-time low against the dollar. The currency has therefore wiped out a good portion of the gains in recent months. The decline brought the currency within a few percentage points of the record low reached on November 6, the day before the appointment of former governor Naci Agbal.

Today, the Turkish Lira stood at 8.0500 per dollar, down 10% since Friday’s close and the collapse was also 14.9% to 8.4850.

The dollar was trading nearly 12% higher than the Lira at 8.0520, the sharpest move since August 2018, when Turkish markets were in another of their cyclic crises.

Analysts said they are ready for more significant moves as investors enter the markets.

The yen rose against the euro, the Australian dollar, and the New Zealand dollar, driven by expectations that Japanese retail investors who lost money with the Lira will sell off other popular yen cross-trades.