(Details of new governor, Agbal tenure)
ISTANBUL, March 20 (Reuters) – Turkish President Tayyip Erdogan ousted Central Bank Governor Naci Agbal on Saturday, two days after the bank blocked interest rates to prevent rising and falling inflation in the lira, replacing it with a ruling party parliamentarian.
This was the third time that Erdogan, who has again called for low interest rates, has resigned as head of a central bank since July 2019 and is likely to renew pressure on Turkish currency when it opens markets again.
Agbal, who was appointed less than five months ago, aggressively raised the key policy flat rate with 875 basis points to 19%, the highest rate of any major economy, earning praise from analysts who said he had established central bank credit.
His sack comes two days after the bank took interest rates by an expected 200 basis points on Thursday, in what they called a “face-laden” move to halt another rise in inflation two-digit and sliding lira.
The country’s official magazine said Erdogan replaced Sahap Kavcioglu, who was an MP for the AK Party that ruled Erdogan and criticized Turkey’s high standards.
“While interest rates are close to zero in the world, we will not choose a rate hike for us to solve economic problems,” he wrote in an article for Yeni Safak’s newspaper last month, saying that rate increases will “indirectly cause inflation to rise”.
The Daily Sabah newspaper reported that Kavcioglu is an economist serving at high levels in several banks, including state lenders Halkbank and Vakifbank.
Since Agbal’s inauguration on November 7, the lira had bounced back more than 15% from a low of more than 8.50 to the U.S. dollar. But even during his brief tenure, the president had publicly stated his preference for lower rates, leaving the central banker with little room to maneuver.
“Agbal is doomed if he walks and spoils if he doesn’t,” said Emre Peker, Eurasia Group’s European team leader, ahead of a big boost on Thursday.
Agbal had said it was not a short-term policy to maintain a tight monetary stance and that Turkey would get inflation – currently above 15% – down to its target level of 5% by 2023 by sticking to that line.
“If you abandon a strict policy stance … at an early stage, past experiences show that inflation will move up again,” Agbal told Reuters last month in the first his interview as governor.
The withdrawal follows the bank’s rapid turnaround, which has now seen four regulators in less than two years.
In July 2019, Erdogan accused governor Murat Cetinkaya of not swiftly bringing flat rates down. He fired Cetinkaya’s agent, Murat Uysal, in November last year after the lira fell to a low.
Written by Dominic Evans; Edited by William Mallard