Lira Crashes After Erdogan Unexpectedly Fires Turkey's Central Bank Governor
Just as glimmers of hope were starting to emerge that Turkey may finally crawl its way out of the deep hole it dug for itself last summer… and Erdogan happens.
The Turkish Lira has opened in early trading, crashing over 16 handles…
So what will Erdogan do to support the Lira this time? Ziad Daoud, Bloomberg's Mideast economist pointed out:
“If Erdogan’s aim was to get lower interest rates, then the decision to replace the governor could backfire. Now there’s an additional credibility constraint, with financial markets certain to scrutinize the motivation and magnitude of any easing.”
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As we detailed yesterday, the world sure can be an ironic place: just one week after the Bank of International Settlements highlighted Turkey as the case study of all the bad things and political costs resulting from political meddling and intervention in a central bank's affairs, when BIS General Manager Agustin Carstens said "you see the government undermining the autonomy of the central bank and at the same time you see the negative consequences,” adding that looking at Turkey, other countries can "see what happens when the government tinkers with the autonomy", Turkey's president Erdogan had just one message: "hold my bear."
That's right: two weeks after Erdogan appeared to finally throw in the towel on aggressively authoritarian practices when he conceded the loss of the Istanbul election revote to his ruling party's primary challenger in a surprisingly subdued response, the "executive president" reminded everyone just why Turkey remains a consummate economic basket case, when on Saturday morning, Erdogan unexpectedly fired Murat Cetinkaya as central bank governor, after he reportedly refused an informal request to resign, according to Bloomberg which also correctly notes that the decision to terminate the centrist central banker risks a furious market backlash just as foreign money started returning to Turkey, which was expected to start interest-rate cuts in the immediate future.