The Turkish lira fell to an all-time low, influenced by fears of rising inflation worldwide, and expectations at the local level that the central bank will cut interest levels soon, along with concerns about possible early elections.
The Turkish currency, which is the worst-performing in emerging markets this year, fell as much as 8.6 lira to the dollar, breaking an all-time low of 8.58 in November.
Changes in the Central Bank
Several administrative changes took place in the Turkish central bank, yesterday, Thursday, and the executive directors of the banking, research, and statistical departments were among the top central bank employees who were replaced. According to Bloomberg.
Sources in the bank said that some changes were made between employees of the budget and legal departments, and the internal changes were not announced to the public.
This step comes two months after President Recep Tayyip Erdogan dismissed the governor of the Central Bank, Naji Avbal, the third governor of the bank in less than two years, which led to the collapse of Turkish markets. Erdogan, who carries unconventional ideas about monetary policy and its impact on inflation, has replaced three additional members of the central bank’s interest-setting committee since Kavçioglu was installed as the new governor.
The impact of Erdogan’s decisions
The decision to dismiss Iqbal, who sought to restore the central bank’s credibility, quickly reflected investor enthusiasm, and the lira had fallen 16% since mid-March, and the new ruler pledged to continue politics after his appointment and kept interest rates unchanged for the second month in May.
The Turkish Central Bank kept the key interest at 19%. Ihsanoglu announced that he “intends to keep it at a higher level than the annual inflation rate,” which reached 16.2% last month and also expected inflation to decline to 9.4% by the end of 2021.
The credit rating agency Moody has warned that Turkish President Recep Tayyip Erdogan’s dismissal of the central bank governor will likely negatively affect capital flows to Turkey and renew pressure on the exchange rate, leading to higher inflation. She suggested that the central bank would reduce interest rates below the level of inflation to push growth under his new governor, who shares Erdogan’s views on easing monetary policy.