Dubai, United Arab Emirates (CNN) – The Turkish lira plunged against the dollar on Monday after Turkish President Recep Tayyip Erdogan abruptly sacked the country’s central bank chief at the end of the week.
On Monday, the currency was trading at around 8.12 against the US dollar, down nearly 12% from Friday. The currency had deteriorated further against the dollar earlier in the morning.
The deterioration of the lira came after Erdogan sacked the governor of the Turkish Central Bank, Naji Aghbal, according to a presidential decree in the early hours of Saturday morning. Aghbal held the position for less than 5 months, to be replaced by Shihab Kafcioglu, a former banking and parliamentary professor for the ruling Justice and Development Party headed by Erdogan.
“Central Bank President Aghbal’s sudden dismissal over the weekend could deal a fatal blow to investor confidence in Turkey,” Wayne Thien, global head of currency strategy at Brown Brothers Harriman, wrote in a research note on Sunday.
In his five months at the helm of the central bank, Aghbal defended his economic reforms and independence. Just two days before his dismissal, he raised interest rates by 200 basis points to 19%, higher than expected.
“By introducing that hard-line surprise, Abgal’s days were numbered as he found himself on the receiving end of President Erdogan’s anger. After restoring investor confidence with a series of violent interest rate hikes, Turkey snatched defeat from the jaws of victory,” Winn wrote.
Wen said that the repercussions could push the Turkish currency to 8.58 pounds to the US dollar, which is the highest level it has ever seen, and even “surpass it,” according to Wayne.
Erdogan believes in an unconventional approach to monetary policy, which relies on keeping interest rates low to avoid inflation. Kavçioglu, the newly appointed head of the central bank, has previously defended similar decisions. Kavcioglu was a member of parliament for the Justice and Development Party from 2015 until 2018 and wrote columns for the pro-government newspaper Yeni Safak.
