Two days after a bigger-than-expected increase in interest rates, Turkey’s President Recep Tayyip Erdogan removed the country’s third central bank governor in less than two years, and replaced him with an advocate of lower interest rates.
Erdogan fired Governor Naci Agbal, who was appointed in November, and gave the job to Sahap Kavcioglu, according to a decree published after midnight on Saturday in the Official Gazette. Agbal’s abrupt removal comes on the heels of a 200 basis-point interest-rate hike by the central bank on Thursday, double what was expected in a Bloomberg survey.
Agbal took the job as Turkey’s top banker after weeks of declines in the lira and raised the benchmark one-week repo rate by a cumulative 875 basis points since, boosting the central bank’s damaged credibility among investors. Erdogan, who backs an unconventional theory that high interest rates cause inflation, has for years frequently chastised the central bank when he thought it was setting borrowing costs too high.
Kavcioglu is a professor of banking at Marmara University in Istanbul and a columnist at the pro-government Yeni Safak newspaper. The paper criticized the monetary authority’s latest interest-rate increase on its front page on Friday, saying the decision “turned a deaf ear” to Turkey’s 83 million people, would hurt economic growth and primarily benefits “London-based owners of hot money.”
Turkish Pro-Government Newspaper Slams Central Bank Rate Hike
Interest Rates
In a column published by Yeni Safak on Feb. 9, Kavcioglu said it was “saddening” to see columnists, bankers and business organizations in Turkey seeking economic stability in high interest rates at a time when other countries had negative rates.
“The central bank shouldn’t insist on high interest rates,” he wrote. “When interest rates in the world are close to zero, raising interest rates here won’t solve our economic problems. To the contrary, it’ll deepen them in the period ahead.”
He also seconded Erdogan’s unorthodox theory on the relationship between interest rates and inflation, saying that raising interest rates would “indirectly open the way to increasing inflation.” Most central bankers and economists around the world believe the opposite to be true, and would argue for raising interest rates to try and control excessive inflation.
Growth Push
Kavcioglu takes over after the pace of…
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