The Turkish lira slid as much as 2% on Friday as executive overhauls at state bank Ziraat and the exchange operator followed the shock replacement of a hawkish central bank chief with one expected to usher in interest rate cuts.
The lira dropped to as far as 8.09 against the dollar before trimming losses to 1.3% to stand at 8.04 at 1502 GMT. It has shed 10% since Naci Agbal was sacked as bank governor on Saturday, and began the week briefly plunging 15%.
Agbal - who had hiked the policy rate to 19% to head off near 16% inflation - was replaced by Sahap Kavcioglu, who like Erdogan is a critic of tight policy.
Capital Economics said it expects a 200-point cut in the policy rate next month and more easing later in the year due to “upheaval” at the central bank. It also expects the lira to slide to 9.5 versus the dollar by year-end.
Last weekend, before the volatile market open, Kavcioglu said a permanent fall in inflation remained the goal and that an unscheduled policy meeting was not planned. The next meeting is on April 15.
“The new governor at the very, very least has to hold pat in the April 15 meeting, and ideally with a tightening bias,” said Patrick Esteruelas, head of research at Emso Asset management in New York.
“But I think that’s kind of pie in the sky,” he told Reuters, given Erdogan’s public calls for lower rates.
A flurry of top-level changes continued as Ziraat Bank named Alpaslan Cakar its new CEO, replacing Huseyin Aydin, who was also chair of the national banks’ association (TBB).
At Borsa Istanbul, sources said Korkmaz Ergun would become CEO. He would replace Mehmet Hakan Atilla, a former Halkbank executive who was convicted in an Iran sanctions-busting case in the United States and resigned earlier this month.
The rapid turnover at powerful state and financial institutions began in November when Agbal and a new finance minister were named, and continued this month with changes at the Turkish Statistical Institute (TUIK) and Turkey Wealth Fund, where Erdogan loyalist Salim Arda Ermut took the reins.
The latest overhaul at the central bank sent Turkish stocks down more than 10% this week. Istanbul’s main index slid some 1% on Friday.
Investors sold $29.2 million from Turkish lira-denominated bond funds in the week ended March 24, the biggest weekly net selling this year, on the prospect of quick rate cuts.
Foreign funds have reported about $3.4 billion in Turkish stock and sovereign dollar bond holdings so far this year - much of which could be in the red after Agbal’s ousting.
“The moment they start to lower rates, the market will effectively be pricing the beginning of a loosening cycle that will bring real rates back into negative territory, not attract foreign inflows and potentially fuel another round of dollarization by locals,” said Esteruelas, of Emso.