Turkey’s central bank overhaul could hit capital inflows, lira, inflation: Moody’s

Credit rating agency Moody’s said on Monday that President Tayyip Erdogan’s ousting of the central bank governor would likely lead to a reversal of capital inflows to Turkey and renew pressure on the exchange rate, leading to higher inflation.

Moody’s added that that the central bank may reduce the policy rate to below the level of inflation to push growth under new Governor Sahap Kavcioglu, who shares the same dovish views as Erdogan. Such steps, it said, could lead to higher imports and a larger current account deficit.

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President Recep Tayyip Erdogan abruptly sacked former central bank chief Naci Agbal in the early hours of Saturday, two days after a sharp interest rate hike, and named Kavcioglu, who like the president is an outspoken critic of tight monetary policy.

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