Turkey’s Erdogan sacks central bank governor after rate hike

Turkey’s president has fired the central bank governor, who in his four months in office had won the praise of investors for hiking interest rates and promising tighter monetary policies.

In a decree published in the Official Gazette early on Saturday, President Recep Tayyip Erdogan announced the departure of Naci Agbal, a former finance minister.

He is to 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 hit record lows and inflation soared. In his months in office, Agbal had hiked the benchmark rate a total of 875 basis points, working to rebuild the credibility of the central bank after it was damaged by years of unorthodox policies.

Agbal’s most recent hike of 200 points on Thursday took the rate to 19 percent, which was higher than analysts expected.

The bank said tight monetary policy would be maintained until inflation, which has hit 15.61 percent, was brought under control.

Erdogan is openly averse to high interest rates, claiming high rates cause inflation, which stands in opposition to mainstream economic theory.

He has pressured the central bank to keep rates low to fuel borrowing and growth. Critics say the independence of the central bank has been severely damaged through political pressure.

Erdogan’s decree on Saturday appoints Sahap Kavcioglu as the new central bank head. Kavcioglu is a banking professor and a columnist in a pro-government newspaper where he has argued for low interest rates.

He previously served as a politician in Erdogan’s ruling party.

Past central bank managers before Agbal have burned through most of Turkey’s reserves trying to support the currency while rates remained well below that of inflation.

A modest recovery in the lira’s value since Agbal’s appointment in November had given the impression he had won Erdogan’s blessing to keep the rate high for some time to ward off inflation and help the lira recover.

But Erdogan’s dislike of high interest rates has remained consistent, with him saying as recently as January that he was “absolutely against” them.

“I know our friends get angry but with all due respect, if I am president of this country I will keep saying this because I believe that high interest rates will not help develop this country,” he said.