Turkish President Recep Tayyip Erdogan 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 Erdogan 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.
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 Erdogan 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.”