Erdogan is central bank revision clears way for more rate cuts

  • Three MPC members fired, two new the ones die are appointed
  • Lira is getting fresh record low of 9.19 against dollar
  • Erdogan sacked three governors in 2-1/2 years

ISTANBUL, Oct. 14 (Reuters) – Turkish President Tayyip Erdogan fired three central bank policy makers on Thursday, two of die were seen to oppose the last interest rate cut, clean up way for more policy easing and sending the lira to a new all time low.

Analysts viewed the move – announced at midnight in the Government Gazette – as new evidence of political interference by Erdogan, a self-described enemy of interest rates who belt often for monetary stimulus.

without explanation for the decisionErdogan sacked vice governors Semih Tumen and Ugur Namik Kucuk with the longest-running monetary policy committee member (MPC), Abdullah Yavas, according to the Gazette.

He named two new members – Taha Cakmak as deputy and also Yusuf Tuna – who are little known on the central bank of among economists, leaving the MPC with little money policy experience after years of revision by the president.

Two sources known with internal deliberations said Kucuk and Yavas were impeached after disagreeing with last 100 basis points of the month rate austerity, which surprised investors at the time and caused the currency to tumble.

On Thursday, the lira weakened as much as 1% to a record low of 9.1900 against the dollar after the announcement for pairing losses.

The currency has lost about 19% this year year, mainly because of the central bank’s bruised credibility and concerns among investors and savers over premature rate cuts in the face of inflation die has risen to almost 20%.

“The lira has its institutional support in past years … and last night changes strongly indicate that the central bank is no more in stands of Turkey’s monetary management policy’, says Arda Tunca, economist at Eko Faktoring.

The combination of monetary policy and financial regulations left the “Turkish” economy extremely vulnerable,” he said added.

Last month the central bank cut it policy rate (TRINT=ECI) up to 18% if Erdogan – sliding in opinion polls and eager to boost credit and exports – had in publicly sought. Most analysts called the easing a mistake at the same time of accelerate global inflation. read more

TURN AROUND

The MPC overhaul came after the presidency said: on Wednesday night die Erdogan had met Governor of the power station bank Sahap Kavcioglu and it published a photo of the two men together.

That marked a turnaround of last week when Reuters reported, citing three sources, that Erdogan was losing confidence in Kavcioglu and that the two had communicated little in recent weeks. read more

While the MPC has seen rapid turnover, this year, Kavcioglu pushed for changes in according to the past few days one of the sources with knowledge of the matter.

“Kavcioglu species of the erased path to be able to lower rates more fast with the new members,” said the person. Now, die… who were far in the direction of rate cutbacks have been removed.”

Erdogan appointed governor of Kavcioglu in March. read more

In just over two years, Erdogan abruptly fired three bank governors over policy differences, a dizzying one display of political interference so bad hit banking credibility and predictability. read more

“Fire central bank civil servants in the middle of the night without a very good explanation is not how you build central bank credibility of strengthening market to trust,” one foreign investor said: on Thursday.

Turkey’s headline inflation hit a 2-1/2 year high of 19.58% in September, while a core measure – which Kavcioglu has emphasized over the last month – was 16.98%.

INTERNAL OPPOSITION

Kavcioglu addressed a parliamentary committee this week and said: rate cutting was no surprise and had little to do with the subsequent sale of liraoff. read more

The bank’s next policymeeting setting is on October 21, when another rate cut is considered probable.

Market reaction on Thursday changes including a jump in the premium die demanded by investors to keep Turkish debt over safe haven US Treasuries, based on on the JPMorgan EMBI Global Diversified Index. It hit 521 base points, the highest since April, pushing spreads above die stay of Ukraine and Kenya.

The second source who spoke met Reuters said both Kucuk and Yavas… who September missed policy meeting – had against some recent bank decisions.

Kucuku also opposed an unorthodox policy in 2019-2020 of using the bank’s forex reserves to support the lira via stands bank sales, the person said, adding that Kucuk had warned the MPC that not keeping rates high enough will now only lead to even higher prices in the future.

Cakmak, the new deputy governor, was deputy chairman of the Turkish BDDK banking watchdog as of 2019. He previously held positions at government lender Ziraat Bank, including head of human resource department.

Tuna, the other MPC tenant, was a professor and also served as management board member of the BDDK from 2003-2009.

“It may be assumed that the newly appointed members of the central bank committee will support Kavcioglu and Erdogan’s money policy’ said Antje Praefcke, analyst at Commerzbank. “That’s not a good omen for the Turkish lira.”

Reporting by Daren Butler, additional reporting by Ezgi Erkoyun, Jonathan Spicer and Ali Kucukgocmen; Writing by Jonathan Spicer; Editing by Dominic Evans, Stephen Coates and Gareth Jones

Our standards: The Thomson Reuters Trust Principles.

Read More: World News

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