The currency traded around 8.12 per US dollar on Monday and weakened about 12% from Friday. It had slipped even further against the dollar earlier in the morning.
The lira’s fall came after Erdogan fired Turkish central bank governor Naci Agbal by presidential decree early on Saturday. Agbal had served less than five months. He was replaced by Sahap Kavcioglu, a bank professor and former parliamentarian of Erdogan’s ruling Justice and Development Party known as AKP.
“The shocking firing of central bank chief Agbal over the weekend could be a fatal blow to investor confidence in Turkey,” Win Thin, global head of currency strategy at Brown Brothers Harriman, wrote in a research note on Sunday.
In the five months that Agbal led the central bank, he defended its economic reform and independence. And just two days before his resignation, he hiked interest rates 200 basis points to 19%, higher than expected.
Delivering that “hawkish surprise” counted Abgal’s days as he found himself on the receiving end of President Erdogan’s wrath, “Win wrote.
“After regaining investor confidence with a series of aggressive rate hikes, Turkey seized defeat from the jaws of victory,” he added.
Win said the impact could push and “even exceed” the lira to 8.58 per US dollar, its all-time high.
Erdogan believes in an unorthodox approach to monetary policy, based on keeping interest rates low to avoid inflation. Kavcioglu, the newly appointed head of the central bank, has taken similar approaches. He was a member of parliament in the AKP from 2015 to 2018 and wrote columns for the pro-government newspaper Yeni Safak.
“Right now, it doesn’t matter who Agbal’s replacement is or what they say, because it’s clear Erdogan is running the show,” said Win.
– John Defterios contributed to this report.