Stability and reform are mirages when it comes to Turkey. The day after the financial press rained praise on the governor of Central Bank of Turkey, Mr Naci Agbal for his recent 200 basis point rate hike and his no-nonsense approach to monetary policy, Erdogan sacked him. He was replaced by Prof Şahap Kavcıoğlu, who has no central banking experience and is a former AKP member of the parliament. The decision was published in the Official Gazette after market hours, meaning that the shock will be reflected to financial markets on Monday. The Official Gazette, and Turkish press are yet to cite a reason. Thus, Turkey’s brief reform movement ended like a candlelight in the wind.
Pro-government Daily SABAH announced the firing in a brief news report:
Turkey dismissed the head of the Central Bank of the Republic of Turkey’s (CBRT) Naci Ağbal and replaced him with professor Şahap Kavcıoğlu, according to a presidential decree published Saturday in the official gazette.
The move came two days after the CBRT hiked its benchmark policy rate by 200 basis points to 19%, twice the market forecast in what it called a “front-loaded” move to head off rising inflation and support the Turkish lira.
Former Finance Minister Ağbal was appointed as governor in November. With his hawkish rhetoric against inflation, the CBRT tightened policy by 875 basis points since his appointment. The decree provided no reason for Ağbal’s dismissal.
The new governor of the central bank, Kavcıoğlu, will assume the office effective immediately.
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A former lawmaker from the ruling Justice and Development Party (AK Party) for the northeastern province of Bayburt, Kavcıoğlu is an economist who served at high-level positions in several banks, including state lenders Halkbank and Vakıfbank.
It is ironic that the move came at the end of a day when Islamist daily Yeni Safak accused Naci Agbal of colluding with foreign interests to raise rates, sharply criticizing the monetary tightening. His successor Prof Sahap Kavcioglu is also a columnist at the said daily.
Higher rates, while absolutely necessary to defend the exchange rate and push back rising inflation are extremely painful for Turkey’s cash-strapped and highly leveraged corporate sector.
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The move may also mean a rapid monetary easing to prepare for early elections. This is a breaking story. PATurkey will update developments in Ankara throughout the day.
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