Turkish President dismisses Naci Agbal after just four months over interest rate surprise.
The president of Turkey has fired the governor of the central bank, who in his four months in office has received praise from investors for raising interest rates and promising tighter monetary policy.
In a decision published in the Official Gazette early Saturday, President Recep Tayyip Erdogan announced the departure of Naci Agbal, a former finance minister.
He should be replaced by a banking professor who has argued for lower interest rates.
Agbal was brought in to lead the central bank after the Turkish lira reached its highest record and inflation soared. In his tenure, Agbal raised the standard rate by 875 basis points, working to rebuild the central bank’s credibility after being damaged by years of unorthodox policies.
Agbal’s recent 200-point increase on Thursday raised the rate to 19 percent, which was higher than analysts had expected.
The bank said strict monetary policy would be maintained until inflation, which reached 15.61 percent, was under control.
Erdogan is openly averse to high interest rates, claiming that high rates cause inflation, which is contrary to general economic theory.
He put the central bank under pressure to keep interest rates low to supplement lending and growth. Critics say the independence of the central bank has been severely damaged by political pressure.
Erdogan’s decision on Saturday named Sahap Kavcioglu as the new head of the central bank. Kavcioglu is a professor of banking and a columnist for a government newspaper, arguing for low interest rates.
He previously served as a politician in Erdogan’s ruling party.
Former central bank executives before Agbal have burned most of Turkey’s reserves and are trying to support the currency, while rates remain well below the inflation rate.
A modest recovery in the value of the lira since Agbal’s appointment in November gave the impression that he had won Erdogan’s blessing of keeping the rate high for some time to prevent inflation and help the lira recover.
But Erdogan’s aversion to high interest rates has remained constant, and he recently said in January that he was ‘absolutely against it’.
“I know our friends are getting angry, but if I am president of this country, I will keep saying that because I believe that high interest rates will not help develop this country,” he said.