Hot seat at Central Bank of Turkey to Batter Lira Bulls Once Again

Turkish Economy How Inflation Pressures Central Bank to Tighten Policy

Photographer: Nicole Tung / Bloomberg

Turkey’s central bank is about to merge its merry-go-round into Wall Street conspirators promising to recycle in the lira.

Traders do not have to look long for a historical reference. President Recep Tayyip Erdogan has fired four central bank leaders since taking office in 2014, including three in the past 21 months.

The turn clarifies how money managers can never be too comfortable with the state of affairs in Ankara. During Naci Agbal’s four-month tenure, a Turkish investor’s concern as measured by the one-month volatility of lira caused the largest in the world. And after the hot start of the currency to 2021, bank analysts they added to their bullish forecasts further.

Naci Agbal

Now, Agbal’s ouster is echoing fears of a repeat of July 2019, when Erdogan fired at Murat Cetinkaya for ignoring the president’s infallible theory to high interest rates cause rather than inhibit inflation. The lira sank 1.6% at the global level next week, the central bank delivered a enrollment rate cut before the end of the month and the money ended the year slashing all peers except Argentine peso.

“For veterans in Turkey, this looks very much like a story they’ve seen several times before,” Hasnain Malik and Patrick Curran, Tellimer’s strategists, wrote in a report. “Monday appears to be bloodshed for the Turkish lira as markets express their clear and strong dissatisfaction.”

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Turkey’s currency has climbed 3.1% this year, beating all of its emerging marketers, although its position at the top of the rankings is almost certain to change it in the days to come. In addition to the money authority’s policy pivot, the concern among investors is that the removal of Agbal could reflect broader guidance rearrangement at the ministry of finance, including the possible return of Erdogan’s son-in-law Berat Albayrak.

“This would be disastrous for Turkish property and it will send a clear sign that it was not appropriate policy making back to full power, ”wrote Malik and Curran, lowering their perception of the country’s equality and trade behavior.