Central bank chief sacking sparks Turkish turmoil

Turkey's foreign exchange dealers were in a spin Monday (March 22) morning.

The country's lira currency plunged to near-record lows after the shock weekend ousting of central bank governor Naci Agbal.

He was pushed out by President Tayyip Erdogan, and replaced with ruling party lawmaker Sahap Kavcioglu.

The new man shares the president's unorthodox belief that high interest rates can fuel inflation.

That, and the apparent political control of monetary policy, deeply alarms markets.

Kavcioglu is the third central bank chief abruptly installed by Erdogan since mid-2019.

Though he's pledged to make no sharp turn in policy, economists have their doubts.

Selva Demiralp is a professor at Turkey's Koc University:

"Moving forward it is a significant risk regarding credibility, which is why Turkey's credit risk premium is going up, and even though the new governor of the Central Bank also signalled that they are going to emphasise price stability it raises questions, because if they will both emphasise price stability then why was Naci Agbal replaced?"

In less than five months on the job, Agbal had raised rates by almost 9 percentage points, and won back some credibility for the central bank.

Now analysts predict that Kavcioglu is likely to reverse those hikes, which were intended to shore up Turkey's capital account and dwindling foreign reserves.

One at Societe Generale told Reuters there would be 'financial turmoil'.

The concern drove European stocks lower in early trades, with money flowing into perceived safe havens like German government bonds instead.