The currency traded at about 8.12 per US dollar on Monday, which has weakened by about 12% since Friday. It slipped even further against the rookie earlier in the morning.
The fall of the lira came after Erdogan fired central bank Turkish governor Naci Agbal early Saturday. Agbal worked for less than five months. He was replaced by Sahap Kavcioglu, a banking professor and former Member of Parliament for Erdogan’s ruling Justice and Development Party, known as the AKP.
“The shock that central banker Agbal unleashed over the weekend could inflict a fatal blow on investor confidence in Turkey,” Win Thin, global head of currency strategy at Brown Brothers Harriman, wrote in a Sunday research note.
In Agbal’s five months as central bank leader, he defends economic reforms and their independence. And just two days before his dismissal, he raised interest rates by 200 basis points to 19%, higher than expected.
By delivering the ‘hawkish surprise’, Abgal’s ‘days were numbered when he found himself on the receiving end of President Erdogan’s anger,’ writes Win.
“After Turkey regained investor confidence with a series of aggressive rate hikes, it snatched the defeat from the jawbone of victory,” he added.
Win said precipitation could even push the lira to $ 8.58 per dollar, the all-time high, and even surpass it.
Erdogan believes in an unorthodox approach to monetary policy based on keeping interest rates low to avoid inflation. Kavcioglu, the newly appointed head of the central bank, defended similar approaches. He was a member of parliament in AKP from 2015 to 2018 and wrote columns for the Yeni Safak newspaper.
“At this point, it does not matter who Agbal’s replacement is or what they say, because it is clear that Erdogan is running the program,” Win said.
– John Defterios contributed to this report.