Status: 10/14/2021 2:39 p.m.
Once again, President Erdogan interfered in the personal details of the Turkish central bank: no less than three members have to vacate their posts. As a result, the lira dropped dramatically.
The Turkish President Recep Tayyip Erdogan has again intervened in the personnel policy of the national central bank. By decree last night he dismissed Semih Tumen, Ugur Namik Kucuk and Abdullah Yavas and appointed two new members of the monetary policy committee in their place. Taha Cakmak became, among other things, deputy head of the central bank.
According to media reports, at least one of the dismissed is said to have voted against the latest rate cut. It can be assumed that the other two members are also skeptical of the central bank’s course, said Commerzbank expert Antje Praefcke.
Lira plummeting
The local currency, the lira, reacted with significant losses and even fell to a record low. After the announcement, the US dollar rose to 9.19 lira. Never before have so much lira had to be paid for a dollar.
The currency also fell noticeably against the euro. One euro cost up to 10.67 lira. This means that the record high of 10.75 lira for one euro is not far away. The lira recovered only slightly over the course of the day.
Meeting with the central bank chief
Before the decree was published, Erdogan is said to have met with central bank chief Sahap Kavcioglu. Kavcioglu, who has been in office since March, is already the fourth central bank governor since 2019. His predecessors had all fallen out of favor because they did not support the course of a loose monetary policy envisaged by Erdogan. Although Kavcioglu switched to Erdogan’s course at the end of September, there has recently been speculation about a clouded relationship between the two.
Turkey has been suffering from high inflation for a long time, against which central banks usually take action with a tighter monetary policy through higher key interest rates. These could also support the rate of the lira, which would make imports cheaper again, say experts.
Inflation at its highest level since 2019
Last month, however, the central bank cut the key rate from 19 percent to 18 percent – despite a price increase rate of almost 20 percent. Observers see behind this the influence of Erdogan, who is a declared opponent of high interest rates. He sees this as a brake on economic growth and instead advocates rate cuts as an antidote.
Since the beginning of 2021 alone, the lira has lost almost a fifth of its value. In the past three years it has lost more than half. According to observers, Erdogan’s repeated interventions in monetary policy are undermining the confidence of financial market players in the monetary authorities and in the lira.
The devaluation of the currency harbors a further risk of inflation, as the country, which is poor in raw materials, is highly dependent on imports, which usually have to be paid for in foreign currency and are therefore becoming more and more expensive. The prices for other foreign goods also rise sharply as a result.