Photographer: Nicole Tung / Bloomberg
Photographer: Nicole Tung / Bloomberg
The merry-go-round at the Turkish central bank is about to knock off Wall Street opponents who bet on a recovery of the lira.
Traders don’t have to look far for historical reference. President Recep Tayyip Erdogan has fired three central bank leaders in the past 21 months.
The revenue emphasizes how money managers can never feel so comfortable with the goings-on in Ankara. During Naci Agbal’s four-month tenure, Turkish investors’ fears, measured by the lira’s one-month implied volatility, diminished the most in the world. And after the mint’s hot start in 2021, bank analysts raised their bullish forecasts even further.
Now Agbal’s resignation raises fears of a repeat of July 2019, when Erdogan fired Murat Cetinkaya for disregarding the president’s unorthodox theory that high interest rates are more likely to cause than curb inflation. The lira fell a world-leading 1.6% the following week, the central bank delivered one record rate cut towards the end of the month and the currency ended the year trailing all of its counterparts except the Argentine peso.
“For veterans in Turkey, this is very much like a story they’ve seen several times before,” Hasnain Malik and Patrick Curran, strategists at Tellimer, wrote in a report. Monday is likely to be a bloodbath for the Turkish lira as the markets express their clear and strong discontent.
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The Turkish currency is up 3.1% this year, beating all of its emerging market counterparts, although its ranking will almost certainly change in the coming days. Aside from a policy pivot point with the monetary authority, the concern among investors is that Agbal’s removal could usher in broader leadership recast at the Ministry of Finance, including the possible return of Erdogan’s son-in-law Berat Albayrak.
“This would be disastrous for Turkish assets and a clear sign that it is unorthodox make policy is back in full force, ”wrote Malik and Curran, revising their view of the national equities and carry trade downwards.
Refers to year in second paragraph.