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Turkey’s Erdogan overhauls cenbank MPC, lira hits record low

Economy11 minutes ago (Oct 13, 2021 07:31PM ET)

(C) Reuters. FILE PHOTO: A logo of Turkey’s Central Bank (TCMB) is pictured at the entrance of the bank’s headquarters in Ankara, Turkey April 19, 2015. REUTERS/Umit Bektas///File Photo

By Daren Butler

ISTANBUL (Reuters) – Turkey’s President Tayyip Erdogan dismissed three central bank monetary policy committee (MPC) members on Thursday, appointing two new members in their place, the country’s Official Gazette said, sending the lira to fresh record lows.

It said those dismissed were deputy governors Semih Tumen and Ugur Namik Kucuk, along with another MPC member, Abdullah Yavas.

Erdogan appointed Taha Cakmak as a deputy central bank governor and Yusuf Tuna as an MPC member, it said.

The lira weakened to a record low of 9.1900 against the dollar after the announcement, a loss of 1% on the day. It has weakened about 19% so far this year, driven by concerns about monetary policy.

The MPC overhaul came after the presidency said on Wednesday evening that Erdogan had met Central Bank Governor Sahap Kavcioglu, publishing a photo of Erdogan standing next to him.

Last month the central bank cut its key rate to 18% from 19% despite annual inflation of nearly 20%, in a move analysts viewed as fresh evidence of political interference by Erdogan, a self-described enemy of interest rates.

Kavcioglu said this week that the rate cut was not a surprise and had little to do with the subsequent lira sell-off.

The bank’s next policy-setting meeting is on Oct. 21.

Last week, three sources familiar with the matter said Erdogan was losing confidence in Kavcioglu, less than seven months after he sacked Kavcioglu’s predecessor, and that the two had communicated little in recent weeks.

Erdogan has made a series of changes to the MPC in recent years. He fired three bank governors in the last 2-1/2 years over policy disagreements, hitting the lira and badly harming the credibility and predictability of monetary policy.

Headline inflation hit a 2-1/2 year high of 19.58% in September, while a core measure – which Kavcioglu has been stressing over the last month – was 16.98%.

Erdogan appointed Kavcioglu in March after ousting Naci Agbal, a policy hawk who had hiked rates to 19%. Erdogan ramped up pressure for easing in June when he said publicly that he spoke to Kavcioglu about the need for a rate cut after August.

Turkey’s Erdogan overhauls cenbank MPC, lira hits record low

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