Turkish lira drops after President Erdogan fires deputy central bank chief

The Turkish lira weakened 13 per cent after President Tayyip Erdogan removed a central bank deputy governor, Murat Cetinkaya, from his post on Tuesday, 10 days after he fired the bank's hawkish governor in a shocking move.

Banker Mustafa Duman was appointed to the post, according to the Official Gazette. He has held executive positions at Morgan Stanley Securities and also had treasury, risk and auditing jobs in the financial sector, the central bank said.

The decree gave no reason for the change. Cetinkaya, a former CEO of the Istanbul stock exchange, had served since mid-2019 at the central bank, which has seen rapid turnover in its upper ranks including four governors in two years.

The lira weakened in response and touched 8.29 against the US dollar, before firming to 8.26 by 0652 GMT.

On March 20, Erdogan ousted Naci Agbal, an orthodox governor who hiked the key interest rate to 19 per cent to address double-digit inflation. Sahap Kavcioglu, who has supported the president's view that high rates cause inflation, was named the new chief.

The move led to market turmoil amid concerns Turkey may return to unorthodox economic policies and rapid rate cuts. Inflation stood at 15.6 per cent in February.

Deutsche Bank estimated foreigners dumped between $750 million and $1 billion of Turkish equities last week, in addition to $500 to $750 million in local bonds.

In an interview with Bloomberg, new Central Bank Governor Sahap Kavcioglu dismissed "prejudiced" expectations of an early rate cut in April or the following months.

Responding to speculation that Turkey could impose capital controls to protect its currency, Erdogan's chief economic adviser, however, told Reuters it was not considering them.