LONDON, March 20 (Reuters) – The reshuffle of Turkey’s central bank governor will weaken the creditworthiness of the country’s monetary policy, and any return to neutral policies would be negative for its credit ratings, Scope Ratings warned Saturday.
President Tayyip Erdogan ousted Naci Agbal on Saturday, dismissing Sahap Kavcioglu, a former MP for Erdogan’s AK Party (AKP) ruling and criticizing a tight monetary policy.
Agbal, who was appointed less than five months ago as the fourth regulator in five years, had pulled market signals by raising the policy rate by 875 basis points to 19%, the biggest increase greater in any large economy. On Thursday, it made the latest such walk in a bid to control inflation, nearly 16%, and lira dipped.
“There is still a misunderstanding within Turkish leadership about the place of a limited monetary policy that requires the government to release rates too soon with rising inflation,” said Dennis Shen, director of the sovereign and public sector. at Scope Ratings, in comments emailed to Reuters.
“Turkey should simply not focus on the ultra-low policies with interest in advanced economies with reserved currencies when the value of lira confidence itself is in a crisis of confidence and inflation has risen by almost 16% – more than three times the goal. ”
Under Kavcioglu, a weaker lira, rising inflation and elevated credit growth were unlikely to be achieved by the same proactive action in the central bank’s response, Shen said.
“Instead, Turkey’s macroeconomic imbalance may return to worse than being opposed to central bank policy,” he said.
There was a return to credit negative nonprofit currency policies for Scope’s assessment of Turkey’s foreign currency rating B, Shen said. Turkey was already on a “negative outlook”, he said. (Reporting by Tom Arnold. Editing by Mark Potter)