By Thursday night, Turkish President Recep Tayyip Erdogan signed a presidential decree dismissing the two deputy governors of the Central Bank and another member of the Monetary Policy Committee, in a decision that was expected by many, since the beginning of this year, with the timing and announcement of it being “a surprise.”
By Thursday night, Turkish President Recep Tayyip Erdogan signed a presidential decree dismissing the two deputy governors of the Central Bank and another member of the Monetary Policy Committee, in a decision that was expected by many, since the beginning of this year, with the timing and announcement of it being “a surprise.”
At a time when the reasons for their dismissal were conflicting, the Turkish lira recorded a new decline in the foreign exchange market, and approached with the morning hours the value of 9.18 against the US dollar, in a record deterioration that it had not previously reached in history.
Turkish economists expect that this value may not stop at this point, and that all indications indicate the continued decline of the Turkish lira, especially in light of adhering to the policy of lowering the interest rate, as well as Turkey’s foreign policies that are also reflected in the exchange rate, which appeared during the past two days. After Erdogan threatened a military operation in northern Syria.
The Turkish government has been saying, for months, that it is moving according to a new economic policy, based on lowering the interest rate in order to combat inflation, which has reached “dangerous” levels.
This policy became clearer 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, Murat Çetinkaya. .
What is the secret of “central dismissals”?
The dismissals issued on Thursday night, or those that were preceded by Erdogan, were announced only by a presidential decree published in the Official Gazette, without revealing the reasons or perhaps the “mistakes” made by these people.
And since last March, an economic scene has formed in the country that the Central Bank has “lost the independence” that it is supposed to abide by, in favor of the policies set by the Presidency of the Republic of Turkey.
In the past, all the reasons for Erdogan’s dismissal decrees were linked to the interest rate hike, and today, economic researchers and the media are talking about the same thing regarding the dismissals of Shihab Kavcioglu’s two deputies, Semih Tuman and Ugur Namik Koçek.
Sylva Demirlap, professor of economics at Turkey’s Koç University, considered that the frequent job changes at the central bank are seen as “an additional blow to credibility.”
She adds: “This perception leads to an escape from the Turkish lira,” noting that “the main tool in monetary policy is credibility. The confidence that this credibility provides is what guarantees price and financial stability.”
For his part, Professor of Financial Management at Basaksehir University, Dr. Firas Shabo, says that “there is a dispute between the Presidency of the Republic and Central Bank officials regarding the course of the interest rate in the country.”
He added to Al-Hurra: “The Central Bank wants to raise or stabilize the price, while the presidency wants to lower it in order to reduce inflation rates. The recent price reduction from 19 percent to 18 percent opened the wounds of the Turkish lira, and started the new series of deterioration that is taking place.”
Commenting on the sackings of the two deputy governors of the bank, and before that the governors, Shaabo explained that these changes indicate “the instability of monetary policy in the country, which creates a state of uncertainty for investors.”
And the economic researcher continues: “Conditions in Turkey for investors and hot capital are not good because the monetary vision changes with moments.”
Where are things going?
During the past six months, the lira was in a stage of stability, as the exchange rate remained between 8.4 and 8.5 pounds to the dollar.
However, since late September, until now, a different reality has been imposed, as its decline broke the 9-lira barrier against the dollar, due to several developments, the first of which was the interest rate cut to 18 percent, in addition to Erdogan’s recent threats about the military operation in northern Syria, leading to the dismissal of my two deputies. Central Bank Governor.
The Turkish currency suffered “bruises” within a few years, as it lost 59 percent of its value against the dollar since the beginning of 2018.
As a result, many foreign investors withdrew their money, and according to Central Bank data, foreign investors owned $6 billion in government bonds at the end of the second quarter of 2021, compared to $61.5 billion at the same time in 2013.
Firas Shabo says that on Thursday afternoon, he observed “a state of chaos and fear among merchants in Istanbul,” expecting this feeling to remain for a while “until things calm down.”
He added, “There were indications in the previous stage that the lira would exceed the 9 barrier. I expect the Turkish government to intervene within days to stabilize the exchange rate.”
On the other hand, the economic researcher, Jalal Bakkar, does not see any problem in the conflict existing between the Central Bank and the government’s orientations.
He points out, in statements to Al-Hurra website, that “banks always return their assets to the US Central Bank, which is a weak point for emerging economies, including Turkey.”
Opposition attack
On the other hand, the dismissal decree issued by Erdogan on Thursday night opened the door to a wide attack by Turkish opposition parties, as well as by economists, who expressed this on social media.
“Erdogan and the central bank chief are banding together and impoverishing our people. It is clear that this is cruelty to the nation. Let me also say that the responsibility of the central bank chief in this betrayal is increasing day by day,” said Kemal Kishdaroglu, leader of the Republican People’s Party.
Next to him, Ahmet Davutoglu, the leader of the Future Party, added, “Do you think that changing the deputy governor of the Central Bank, which you appointed five months ago, will solve (the problem) of your ignorance?”
And he continued on Twitter: “Will the nation pay the price for not knowing the relationship between interest, exchange rate and inflation? It is enough, do not oppress the nation’s future.”
While the leader of the Democratic and Progress Party, Ali Babacan, wrote, “The institution that should have been independent has become a toy in the hands of one person. I repeat my suggestion: Mr. Erdogan, do not care.. bring him with you.. appoint yourself as head of the Central Bank, as you did in Wealth Fund.
strange decisions
Meanwhile, Erdogan’s move opened the door to wide discussion and controversy on social media, and it was noticed since Thursday midnight that the hashtag “#dollar” topped the Turkish trend list, on the “Twitter” networking site.
Al-Hurra website monitored the opinions of Turkish economic researchers on social media, during which they criticized the dismissal decrees, and warned of a chronic deterioration that the Turkish lira may accept, in the coming days.
Researcher Abdul Rahman Yildirim says: “It is remarkable that such a change occurred after the decision to cut the interest rate by one point on September 23. If they created a cracking voice in the rate cut, they were thus excluded.”
Yildirim expected that “the interest rate cut will continue next week,” noting that “there is one week until the MPC meeting on October 21. When you look at what happens in one day, you can imagine what could happen in a week.”
In turn, economist Emre Lavci adds: “In normal countries, rulers share their decisions with their reasons. The public also discusses the consequences of the decision. In Turkey, strange decisions are taken without any explanation.”
Turkey’s former economy minister, Eşin Çelebi, called for the central bank to be a “very stable institution”.
He told Dunya newspaper, “The most important issue in terms of macroeconomics is avoiding uncertainty and creating a reliable environment. It is dangerous to make a task change a game in Turkey.”
As for the economist, Ugur Gurses, he described the central bank as a “glassware shop in the country. When politics enters there, the money of this country is broken and spilled.”
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