• President Erdogan fires Naci Agbal, CBRT Governor.
  • CBRT rose rates by 200 basis points on Thursday to 19%. 
  • New governor, a critic of high rates, likely to push for a dovish turn in monetary policy. 

Turkey’s President Recep Tayyip Erdogan abruptly fired the governor of the Central Bank of the Republic of Turkey (CBRT), Naci Abgal, late on Friday. Erdogan’s decision comes after the central bank rose rates by 200 points to 19% amid upside risk to inflation expectations.

Agbal was appointed in November and worked to restore credibility among investors. The lira was tumbling in November, with USD/TRY trading at record highs above 8.50. On Friday, it closed at 7.19. During Agbal’s tenure, the lira appreciated 15% versus the US dollar, and the repo rate rose by 875 points.

Since July 2019, Erdogan has fired three central bank governors. The new CBRT chief will be Sahpa Kavcioglu, a critic of the current tight policy. On Monday, he will probably have to announce measures to prevent sharp fluctuations on the exchange rate.

“It looks like the central bank’s efforts to fight the country’s inflation problem may come to an end, and a messy balance of payments crisis has become (once again) a real possibility”, said Jason Tuvey, Senior Emerging Markets Economist at Capital Economics.

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