Turkey’s economy faces renewed turmoil after President Recep Tayyip Erdogan’s surprise deposition of the central bank governor added a new chapter to years of unpredictable economic policies, scaring foreign investors and potentially sowing the seeds of a financial crisis.
Last Friday, Mr Erdogan replaced Naci Agbal with Sahap Kavcioglu, a former MP for Erdogan’s Justice and Development Party, who publicly sided with the president for lower interest rates, despite inflation of 15.6% a year in February.
Mr. Erdogan, who has fired three central bank leaders in less than two years, prefers low interest rates as part of a strategy to boost growth.
He opposed Mr Agbal’s policy of raising interest rates in an effort to fight inflation and help Turkey pull out of the brink of the crisis. Mr Agbal’s policies have encouraged investors to return billions of dollars to the country since he was appointed in November.
Mr Agbal’s resignation sparked one of the worst one-day sell-offs of assets in Turkish lira on Monday as investors scaled back their exposure to the currency. The lira fell 7.5% against the dollar in one day. Mr. Kavcioglu has tried to reassure the markets by saying he would curb inflation, but has not said whether interest rates will change.