The Turkish president fired Naci Agbal after only four months of work, after a surprising increase in interest rates.
The president of Turkey fired the governor of the central bank, who in the four months of his term won the praise of investors for raising interest rates and promising tighter monetary policies.
In a decree published in the Official Gazette on Saturday, President Recep Tayyip Erdogan announced the departure of Naci Agbal, former finance minister.
He will be replaced by a banking professor who has paid lower interest rates.
Agbal was brought to head the central bank after the Turkish lira hit record lows and inflation rose. In his tenure, Agbal raised the benchmark by a total of 875 basis points, working to rebuild the central bank’s credibility after being plagued by years of unorthodox policies.
Agbal’s most recent 200-point increase on Thursday brought the rate to 19%, which was higher than analysts expected.
The bank said the tight monetary policy would be maintained until inflation, which reached 15.61%, was controlled.
Erdogan is openly opposed to high interest rates, arguing that high rates cause inflation, which runs counter to the main economic theory.
He pressured the central bank to keep rates low to fuel lending and growth. Critics say the central bank’s independence has been severely affected by political pressure.
Erdogan’s decree on Saturday names Sahap Kavcioglu as the new head of the central bank. Kavcioglu is a banking professor and columnist for a pro-government newspaper, where he claimed low interest rates.
He was previously a politician in Erdogan’s ruling party.
Central bank administrators in the past, before Agbal, burned through most of Turkey’s reserves trying to support the currency, while rates remained well below inflation.
A modest recovery in the value of the pound since Agbal’s appointment in November gave the impression that he had won Erdogan’s blessing to keep the rate high for some time to stave off inflation and help the pound recover.
But Erdogan’s antipathy to high interest rates has remained constant, saying he has been “absolutely against” them since January.
“I know our friends are annoyed, but with all due respect, if I am the president of this country, I will continue to say this because I believe that high interest rates will not help the development of this country,” he said.