What are the reasons for the deterioration of the Turkish lira and Erdogan's dismissal of 3 central bank officials?

ANKARA

- At a time when Turkish President Recep Tayyip Erdogan dismissed 3 members of the Central Bank's Monetary Policy Committee, the Turkish lira recorded a new decline in the foreign exchange market, which reached record levels.

The Turkish Official Gazette said that President Erdogan dismissed the two deputy governors - Semih Tumen and Ugur Namik Kucuk - along with another member of the Monetary Policy Committee, Abdullah Yavas.

It added that Erdogan appointed Taha Cekmek as deputy governor of the Central Bank, and Yusuf Tuna as a member of the Monetary Policy Committee.

monetary policy

The lira fell to a record low of 9.1900 against the dollar after the announcement, losing 1% on Friday. It has weakened by about 19% so far this year, driven by concerns about monetary policy.

The MPC reform came after the presidency said Erdogan had met Central Bank Governor Shihab Kavcioglu, and posted a picture of Erdogan standing next to him.

Last month, the central bank cut its key interest rate to 18% from 19%, despite annual inflation of nearly 20%.

Erdogan is described as the enemy of interest rates, and espouses the theory that lowering interest rates will lead to lower inflation.

Kavcioglu stated that the interest rate cut was not surprising, and had nothing to do with selling the lira.

For months, the Turkish government says it is moving under a new economic policy based on lowering the interest rate in order to combat inflation, which has reached dangerous levels.

This policy appeared more clearly after Erdogan appointed Shehab Kavcioglu as the new governor of the Central Bank, last March, in a change that is the fourth of its kind in less than two years, after a series of dismissals that affected the old governors, namely Naji Aghbal, Murat Uysal and Murad. Tishten Kaya.

The headline inflation rate reached its highest level in two and a half years at 19.58% last September, while the basic measure confirmed by Kavcioglu during the last month was 16.98%.

The Central Bank last month cut the main interest rate to 18% from 19%, despite annual inflation of nearly 20% (Reuters)

Reasons for new dismissals

The Turkish economist and businessman Alaeddin Şunkular attributed the dismissal of the three officials to the dispute between the president's refusal to raise the interest rate in order to reduce inflation rates, and the view of the two articles supporting raising the interest rate in order to raise the value of the lira.

Schonkular told Al Jazeera Net - "The bank's lack of independence in its financial and financing decisions in accordance with the amendments to the constitution in April 2017, which allowed the president to intervene, gave way to a dispute between the president and officials in the central bank, which eventually leads to dismissals, as the conflict between the two parties leads to rapid fluctuations." in the prices of hard currencies, gold and silver.

He also pointed out that banks always return their assets to the US central bank, which is a weak point for emerging economies, including Turkey.

The effect of the depreciation of the lira

During the past six months, the lira was in a stabilizing phase, as the exchange rate remained between 8.4 and 8.5 liras per dollar.

But since late September until now, its decline has broken the 9-lira barrier against the dollar due to several developments.

The Turkish currency has suffered within a few years, losing 59% of its value against the dollar since the beginning of 2018.

The Turkish economist Şunkular expects that the deterioration of the lira will not affect the prices of goods and services at a high rate, as the Turkish economy is based on national production at 65-70%, and in the labor force of 96%. At the same time, Turkey annually exports 225 billion dollars to 140 countries in the world.

He pointed out that tourism in Turkey is no longer achieved in the summer season only, as it continues for 12 months with a slight difference in the winter months.

While economists believe that reducing interest has an impact on the rise of the dollar and precious metals, due to the deficit in the budget of the Republic of Turkey between import and export, and also because of the presence of debts on it amounting to 450 billion dollars at present, and if the state budget was stronger than this, this decline would not have occurred in lira.

The Turkish currency has lost 59% of its value against the dollar since the beginning of 2018 (European)

discussion door

Meanwhile, President Erdogan's move opened the door to wide discussion and controversy on social media, and it was noticed since Thursday midnight that the "#dollar" hashtag topped the list of the most interactive on Twitter in Turkey.

"Erdogan and the central bank chief are joining hands and impoverishing our people. It is clear that this is a cruelty to the nation. Let me also say that the responsibility of the central bank chief for this betrayal is increasing day by day," said opposition Republican People's Party (CHP) leader Kemal Kılıçdaroğlu.

Turkey's former economy minister, Eşin Çelebi, called for the central bank to be a "very stable institution".

He said - in statements to the Turkish newspaper "Dunya" - that "the most important issue with regard to the macro economy is to avoid uncertainty and create a reliable environment."