Erdogan rids Turkey’s central bank of opponents to rate cuts

Turkish President Recep Tayyip fired monetary policy makers wary of cutting interest rates further, driving the lira to record lows against the dollar with his midnight decree.

The firing of deputy governors Semih Tumen and Ugur Namik Kucuk, along with Monetary Policy Committee member Abdullah Yavas, followed a meeting between the Turkish president and the bank’s chief Sahap Kavcioglu on Wednesday evening.

The two discussed changes to the committee and economic policy, people familiar with the discussion told Bloomberg. Kucuk was the only member of the committee who voted against Kavcioglu’s surprise rate cut last month, the people said, asking not to be identified, citing sensitivity of the matter. Yavas didn’t vote because he had contracted Covid-19 in the U.S., where he lives.

The lira fell as much as 1.1% to a new record. It was 0.7% weaker at 9.1550 per dollar at 9:42 a.m. in Istanbul.

The firings were probably “motivated by an irritated that interest rates are not coming down fast enough,” Coex Partners’ Henrik Gullberg said. “Markets will now definitely expect further easing” at the next rates decision on Oct. 21.

Dissenting Voices

The changes rid the committee of members who disagreed with Erdogan’s calls to continue cutting rates, according to people familiar with the composition of the committee. The shake-up paves the way for the Turkish president to exert greater influence on the bank’s policy-making panel, which he says should keep lowering borrowing costs.

Turkish Lira Hits Record Low on Rates Comments: Chart

A self-described “enemy” of interest rates, Erdogan espouses an unconventional theory that reducing interest rates will lead to lower inflation.

He appointed Kavcioglu in March, replacing his hawkish predecessor Naci Agbal after back-to-back rate hikes. Kavcioglu kept policy unchanged for nearly six months before unexpectedly cutting the benchmark rate by 100 basis points to 18% in September, when consumer inflation accelerated to 19.6%.

Last week, Erdogan’s office denied a media report that the president was losing faith in Kavcioglu. The Turkish presidency posted a picture of the two men together on Twitter after the Wednesday meeting and the president’s office described their conversation as “positive.”

Cumhurbaşkanı @RTErdogan, Türkiye Cumhuriyet Merkez Bankası (TCMB) Başkanı Şahap Kavcıoğlu’nu Çankaya Köşkü’nde kabul etti.

— T.C. Cumhurbaşkanlığı (@tcbestepe) October 13, 2021

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Leave a Reply

Your email address will not be published. Required fields are marked *