- Justin Harper
- BBC Economic Affairs Editor
The Turkish lira recorded a significant decline yesterday, reaching 14 percent after the dismissal of the Central Bank Governor Naji Aghbal last Saturday, before it returned and recorded some recovery this morning.
Aghbal’s policies are credited with recovering the lira from previous historic lows.
President Recep Tayyip Erdogan’s decision to dismiss Aghbal came as a surprise.
Aghbal had raised the interest rate in an attempt to combat inflation rates that exceeded 15 percent.
Aghbal assumed the post of governor of the Turkish central bank in November, and is the third in this position in less than two years.
The decision to fire the majority of investors, both local and foreign, who praised Aghbal’s policies, shocked.
The lira was among the best performing currencies in emerging markets for 2021, recording a recovery of one-fifth against the US dollar.
Last week, the Lira recorded a noticeable increase, following the decision of Aghbal to raise the interest rate by 2 percent.
Investors are calling for a tougher monetary policy in Turkey in an attempt to tame the runaway inflation rates, amid the rapidly rising prices in the country.
Erdogan replaced Agbal with a new central bank governor, Shihab Qafcioglu. Observers fear that this decision will lead to gains made during the short period in which he assumed the most duties of the post.
Kavcioglu is a little-known, a professor of banking and a former parliamentarian from the ruling Justice and Development Party.
Qafcioglu is known for his opposition to the policy of raising interest rates as a means of countering the high rates of inflation.
The interest rate in Turkey is 19 percent, which lures foreign investors to trade in Turkish lira.
The central bank announced, in a statement yesterday, Sunday, to continue to activate monetary policy tools in pursuit of the main objective of a permanent decline in the rate of inflation.
“Erdogan’s economic system“
Geoffrey Haley, chief market analyst at the Oanda currency exchange company, believes that Turkish President Erdogan has a special system in economic policies, which Jeffrey called “Ardomix”.
Jeffrey told the BBC: “The basic premise of Erdogan’s economic system is that high interest rates entail high rates of inflation, and it is a theory that contradicts the principles of economics anywhere.”
The rise in interest rates leads to a rise in the cost of borrowing, keeping consumers away from overspending and, in return, encouraging saving.
As for low interest rates, this usually leads to a slowdown in economic growth.
According to Geoffrey Haley, the monetary policies of Aghbal were widely appreciated because they were aimed at achieving a stable state of inflation.