Erdogan changes Central Bank Governor in the midst of the lira's collapse

Turkey's President Recep Tayyip Erdogan has appointed Naci Agbal, a former finance minister, as the new governor of the central bank at a time when the lira is at an all-time low against the dollar and the euro.

The appointment of Agbal to replace Murat Uysal, who was appointed by Erdogan in July 2019, was announced today, one day after the lira hit a record low of 10.14 against the euro and 8.55 against the dollar.

The Turkish currency, which has been steadily declining in value over the past month, has already accumulated a 10% depreciation since the beginning of October and a 35% depreciation since it started a sharp downward path last February, after more than a year of relative stability.

The dismissed governor came into office after Erdogan put long pressure on the former head of the issuing bank to reduce interest rates, as the president believes that high rates cause inflation to rise.

After a series of rate cuts, the Central Bank began to raise rates in August in a reaction that analysts believe came late and was not quick enough to contain the fall in the lira.

Interest rates are now at 10.25%, below the inflation rate of 11.89%, well above the government's 5% target.

The new governor, aged 52, was until now head of the presidential budget office. He was previously Finance Minister from 2015 to 2018, when he was replaced by Berat Albayrak, Erdogan's son-in-law.
 

The main opposition party, the Social Democratic People's Republican Party (CHP), has criticised the change, accusing Erdogan of dismissing those who act both according to the laws of the market and the "laws of the palace", in reference to the seat of the presidency.

Analysts believe that Turkey's tensions with Greece in the eastern Mediterranean, Ankara's involvement in the Nagorno-Karabakh conflict and the recent confrontation with France over Paris' measures against radical Islamism have also contributed to the fall of the currency.

Some experts believe that the possible victory of the Democrat Joe Biden in the US elections, who is more inclined to impose sanctions on Turkey in bilateral conflicts than Donald Trump, who is personally more in tune with Erdogan, may also influence the depreciation of the lira.