Sahap Kavcioglu
Photographer: Mustafa Ciftci / Anadolu Agency / Getty Images
Photographer: Mustafa Ciftci / Anadolu Agency / Getty Images
Two days after a higher-than-expected rise in interest rates, Turkish President Recep Tayyip Erdogan fired the country’s third central bank governor in less than two years and replaced him with a lawyer. lower rates.
Erdogan fired Governor Naci Agbal, who was appointed in November, and appointed Sahap Kavcioglu, according to a decree published Saturday afternoon at the Official Gazette. Agbal’s sudden elimination comes after the central bank raised interest rates to 200 basis points on Thursday, double what was expected in a Bloomberg poll.
Agbal took over as Turkey’s top banker after weeks of declining pounds and raised the one-week benchmark repo rate by 875 basis points, boosting the central bank’s credibility among investors. Erdogan, who supports an unconventional theory that high rates cause inflation, has frequently condemned the central bank for years when it thought it was setting the costs of borrowing too high.
Kavcioglu is a professor of banking at Marmara University in Istanbul and an article in the pro-government newspaper Yeni Safak. The newspaper criticized the latest increase in the interest rate of the monetary authority on the front page, on Friday, saying that the decision “made a deaf ear” for the 83 million inhabitants of Turkey, would affect economic growth and would benefit primarily ” holders of hot money in London ”.
Turkish pro-government newspaper weakens central bank rate hike
Interest rates
In a column published by Yeni Safak on February 9, Kavcioglu said it was “sad” to see settlers, bankers and business organizations in Turkey seeking economic stability at high interest rates at a time when other countries had rates. negative.
“The central bank should not insist on high interest rates,” he wrote. “When world interest rates are close to zero, raising interest rates here will not solve our economic problems. On the contrary, it will deepen them in the next period. ”
He also supported Erdogan’s unorthodox theory of the relationship between interest rates and inflation, saying that raising interest rates “will indirectly pave the way for rising inflation.” Most central bankers and economists around the world see the opposite as true and would argue for raising interest rates to try to control excessive inflation.
Push growth
Kavcioglu takes over after the inflation rate accelerated for the fifth month in February to almost 16%. The currency has had one of the worst hits among colleagues since US Treasury yields rose, falling more than 7% since mid-February and adding to demands for Agbal to support the market at higher rates.
Despite the recent decline, the pound has strengthened around 18% under Agbal’s short tenure as expectations have risen that it will return to more orthodox monetary policies and withstand political pressure for lower borrowing costs.
The government’s growth momentum in 2020 led to a 20% drop in the currency against the dollar, keeping consumer inflation in double digits throughout the year. But the economy grew 1.8%, despite the impact of the coronavirus pandemic and associated blockages, and grew 5.9% in the fourth quarter, faster than all other groups of 20 nations except China.
Turkey should abandon strict monetary policy and focus on supporting investment, exports and growth-contributing employment, Kavcigolu said in a recent column. “We need to stop raising interest rates and bring borrowing costs, which have a direct impact on investment and production costs, to reasonable levels,” he wrote in Yeni Safak on March 9th.
Reservation policy
Kavcioglu, who is also a former member of parliament for the ruling Ak party, defended the reserve policies implemented from 2018 to 2020, when Turkey began spending its foreign exchange reserves to try to sustain the pound in times of volatility. It has also borrowed tens of billions of dollars through swap agreements with commercial creditors.
Turkey’s total gross reserves, including gold and reserves held by the central bank on behalf of commercial creditors, fell 20% last year to Agbal’s $ 85.2 billion, while net foreign exchange reserves fell more than half, at $ 19.6 billion.
The use of the central bank’s currency coffers at the time helped curb inflation, interest rates and the exchange rate, Kavcigolu said. Economists Goldman Sachs Group Inc. estimates that interventions exceeded $ 100 billion last year alone.
(Economic background updates, markets from the eighth paragraph)