The Turkish lira dropped to a new low early Thursday after three central bankers were fired in an overnight decree signed by Turkish President Recep Tayyip Erdogan.
The officials were dismissed following a meeting between Erdogan and the central bank governor, Sahap Kavcioglu.
Overnight, the Turkish lira fell by about 1% against the United States dollar to 9.19 for $1, but rallied slightly to 9.13 by the afternoon.
The lira’s value is declining faster than any other emerging-market currency. This is due to fears over political interventions in monetary policy by Erdogan.
The lira takes a beating
This week has spelled trouble for the lira as its valuation reached the 9 to the US dollar mark for the first time Monday. The drop came after Erdogan hinted at a potential new military operation in Syria.
At the start of 2018, the lira was valued at 3.75 to the US dollar. The Turkish currency has lost 60% of its value in the last three years, and 23% of its value this year alone.
Inflation has also soared to 20%. Additionally, the lira has come under pressure due to a surprise recent interest rate cut.
Turkey’s dwindling supply of foreign currency reserves has also contributed to monetary instability.
Politics, not economy, steering lira
The central bank’s official gazette reported the dismissals of deputy central bank governors Semih Tumen and Ugur Namik Kucuk, as well as Abdullah Yavas, a member of the central bank’s monetary policy committee.
According to Turkish media, Kucuk was opposed to the central bank’s decision last month to cut the main interest rate by 1 percentage point.
Erdogan thinks a high interest rate causes prices to rise, and called for a cut to rates in August. Most economists believe otherwise, generally viewing interest rates as a tool to curb inflation.
Replacing the fired bankers, Taha Cakmak was appointed as a deputy governor and Yusuf Tuna as a member of the monetary policy committee.
Erdogan has fired three central bank governors since 2019, undermining the investor confidence he had hoped to build with cheap money, due to concerns over the independence of monetary policy.
ar/fb (AFP, AP, dpa, Reuters)