Turkey’s lira weakened as much as 2.7 percent on Tuesday, bringing its losses in just over a week to more than 14 percent, after President Tayyip Erdogan removed another central bank official from his position overnight.
The lira plunged last week after Erdogan’s sacking of former Central Bank Governor Naci Agbal led to concern that Turkey would return to unorthodox policy and lower the policy rate prematurely.
The currency’s decline picked up pace again on Tuesday after the Official Gazette showed Erdogan had sacked Deputy Governor Murat Cetinkaya, who was appointed in mid-2019.
The lira stood at 8.37 against the dollar at 1139 GMT, compared to Monday’s close of 8.2245. Earlier, it weakened 2.68 percent to 8.4510.
Agbal, who supported orthodox policies and hiked the policy rate by 875 basis points during his less than five months in office, was replaced by Sahap Kavcioglu, a supporter of Erdogan’s view that high rates cause high inflation.
In the ensuing market turmoil, Deutsche Bank estimated foreigners dumped between $750 million and $1 billion of Turkish equities last week, in addition to $500 to $750 million in local bonds.
An analyst said Tuesday’s move was also fueled to a lesser extent by new restrictions against the coronavirus announced by Erdogan on Monday.
“The lockdowns triggered by the rise in case numbers and the reflection of this on the services sector and the potential fiscal burden this will bring, as well as the dollar appreciating globally, are lessening the appetite for Turkish assets,” the analyst said.
Erdogan said a full weekend lockdown was to be in place during the Islamic month of Ramadan, which starts in two weeks, and restaurants would only serve food for delivery and take-outs. He added that the majority of cities in Turkey would return to full weekend lockdowns.
New central bank governor says elevated inflation needs tight policy
Meanwhile, the new central bank governor Sahap Kavcioglu said current elevated levels of inflation require tight policy to ensure continued disinflation.
Speaking at the bank’s annual general assembly meeting, Kavcioglu said the policy rate will remain above inflation until the fall in inflation is permanent.
He said the one-week policy rate will be the main policy tool and policy tools will be used “in an appropriate way.”