The currency was trading on Monday, around 8.12 on the US dollar, weakening by about 12% compared to Friday. He had slipped even harder against the dollar earlier in the morning.
The fall of the pound came after Erdogan fired Turkish central bank governor Naci Agbal by presidential decree early Saturday. Agbal served less than five months at work. He was replaced by Sahap Kavcioglu, a banking professor and former parliamentarian for Erdogan’s ruling Justice and Development Party, known as the AKP.
“Shocking central bank chief Agbal over the weekend could deal a fatal blow to investor confidence in Turkey,” Win Thin, global head of foreign exchange strategy at Brown Brothers Harriman, wrote in a research note on Sunday.
During Agbal’s five months in charge of the central bank, he defended his economic reforms and independence. And just two days before the dismissal, he raised interest rates by 200 basis points to 19%, higher than expected.
By delivering that “crazy surprise,” Abgal’s days were “counted as he awoke at the end of President Erdogan’s wrath,” Win wrote.
“After regaining investor confidence with a series of aggressive rate hikes, Turkey snatched defeat from the jaws of victory,” he added.
Win said the consequences could even push the pound to 8.58 on the US dollar, the all-time high, and could “even exceed it.”
Erdogan believes in an unorthodox approach to monetary policy based on keeping interest rates low to avoid inflation. Kavcioglu, the newly appointed head of the central bank, defended similar approaches. He was a member of parliament in the AKP from 2015 to 2018 and wrote columns for the pro-government newspaper Yeni Safak.
“Right now, it doesn’t matter who Agbal’s replacement is or what they say, because it’s clear that Erdogan is running the show,” Win said.
– John Defterios contributed to this report.