The Turkish currency fell by as much as 14 per cent after President Recep Tayyip Erdogan ousted the country’s central bank chief, who was seen as a crucial force in pulling the lira from historic lows.
The lira traded around 8.4 against the US dollar early in Asia-Pacific trading on Monday, marking a large depreciation from Friday’s closing levels of TL7.22. Quantities at this time of day in the lira-dollar pair are usually thin; however, a source at one bank said activity was above normal levels. Later, the currency reduced losses by about 12 percent, to 8.1 against the dollar.
The removal of Nazi Agbala, announced in the early hours of Saturday morning, shocked many domestic and foreign investors who applauded officials’ decisions to move Turkey towards a more orthodox monetary policy.
“Dissolving what was short of appropriate macro policy will be painful,” said Edward Al-Hussainy, a senior rate and currency analyst at Columbia Threadneedle, adding that it would harm the attractiveness of Turkish property.

Agbal’s appointment in November as part of a broader one an earthquake of economic leadership helped provoke a sharp rally in the lyre, which at one point was also best performed the emerging market currency in 2021 after falling to an all-time low. The lira recovered nearly a fifth of its trough of about 8.58 for the U.S. dollar on Nov. 6 before Agbal’s removal.
The lira was acquired last Thursday after Agbal increased interest rates by 2 percentage points, twice as much as economists expected, on top of the 6.75 percentage point increase it oversaw last year.
Investors have long called for tighter monetary policy in Turkey to tame ongoing inflation more than 15 percent and to stifle strong outflows of foreign investors.
Ehsan Khoman, head of emerging market research at MUFG Bank in Dubai, said Agbal’s leadership and prudent central bank measures played an important role “Key role” in restoring confidence in the lira and Turkish property.
Traders and analysts are worried that Erdogan’s decision to appoint Sahap Kavcioglu could quickly erode the gains made during Agbal’s short term. Kavcioglu is a little-known professor of banking and a former lawmaker from the ruling Justice and Development Party.
The new central bank chief wrote in a column in the Islamist newspaper Yeni Safak last month that “an increase in interest rates will indirectly lead to an increase in inflation” – a position that contradicts most modern macroeconomic theories, but is also supported Erdogan, a vocal opponent of high rates.
Robin Brooks, chief economist at the Institute for International Finance think-tanks, said Turkey was at risk of “large” outflows of investors, which would create pressure on the lira.
Goldman Sachs warned on Sunday of “significant risks of a short-term break move weaker in the lira.”

“Big surprises usually have consequences in the market and I think we can expect a fairly aggressive fall in the lira,” said Paul McNamara, director of investment at GAM.
Kavcioglu said in a statement Sunday that the central bank “will continue to use monetary policy tools effectively in line with its main goal of achieving a lasting drop in inflation”.
The sudden change in monetary policy leadership in Turkey occurred at times lacking in emerging markets, which were under pressure as borrowing costs in the U.S. and other emerging markets climbed. Last week, Russia i Brazil joined Turkey in raising interest rates as they sought to keep inflation at bay.
Additional reporting by Katie Martin and Hudson Lockett of Hong Kong
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