The Turkish lira fell more than 10 percent on December 22 after President Recep Tayyip Erdogan abruptly fired Nach Agbal, the head of the country’s central bank. After an initial low of 8.280 per dollar, the lira recovered to close at 7.75 per dollar by 20:00 GMT.
Fear of inflation
On the other hand, Bitcoin was the most searched word in Turkey the day before the collapse of the lira. Google data shows that searches for bitcoin have increased by more than 500% as inflation fears have risen in the wake of Agbal’s resignation.
Before his resignation, Agbal, who favored higher interest rates to curb inflation, helped the lira become one of the best performing currencies in emerging markets this year. According to the report, satisfied foreign fund managers responded to Agbal’s policies by injecting funds into the Turkish economy. The report states:
During Agbal’s tenure, foreign fund managers invested $4.6 billion in stocks and bonds denominated in local Turkish currency. The government is also betting that higher interest rates will help curb inflation and stabilize the lira.
However, some asset managers fear that the new governor, Sahap Kavcioğlu, will pursue populist policies that support President Erdoğan. However, in his first remarks after his appointment, Kavcioglu, the fourth central bank governor in less than two years, tried to reassure markets by promising to maintain the same targets as his predecessor.
Depreciation of lire
However, the new governor also promised to promote economic stability by lowering borrowing costs and boosting growth. Concerned fund managers believe the comments could indicate that the central bank will allow the lira to depreciate in the future and accept higher inflation and lower interest rates. At the time of writing, the interest rate in Turkey was 19%.
Not only did the news cause a sell-off of the lira, but Agbal’s resignation may have led to a 9.8 percent drop in Turkey’s Borsa Istanbul 100 stock index on the 22nd. Mars contributed. According to the report, the drop is the biggest sell-off of the Borsa Istanbul Index since June 2013 and the introduction of two trading breaks. Similarly, the Nasdaq-listed iShares MSCI Turkey exchange-traded fund fell more than 19% during US trading.
At the same time, some investors fear that Turkey will limit their ability to sell local assets to counter market turbulence. Nevertheless, Lutfi Elvan, Turkey’s Minister of Finance and Treasury, in a statement allayed fears that Turkey will not introduce capital controls or set a fixed exchange rate.
What do you think of Lyra’s fall from grace after the appointment of a new governor? You can tell us what you think in the comments below.
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Financing costs, capital controls, central bank governor, emerging markets, exchange rates, google bitcoin search, inflation, interest rates, Naci Agbal, Recep Tayyip Erdogan, Turkish lira collapse.
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