Turkish Lira Plunges After Upheaval at Central Bank
(Bloomberg) — The Turkish lira plunged as much as 15% following President Recep Tayyip Erdogan’s shock decision to replace the country’s central-bank chief.
It was quoted at 8.2247 at 10:01 a.m. Sydney time after earlier weakening to 8.4707 per dollar. That erased more than four months of gains since the now ex-governor Naci Agbal was appointed in November and putting the lira within a few percentage points of a record low reached earlier that month.
Erdogan’s decision to fire Agbal, who had sought to restore the central bank’s credibility, is a blow to investor confidence and raises concern the country will once again embark on a path of rock-bottom rates. The initial backlash exceeded some analysts’ estimates, and marks a swift reversal of investor enthusiasm toward Turkish markets. That now seemingly sated appetite had helped make the lira the best carry-trade currency this year, with money managers cheering Agbal’s move to raise interest rates and efforts to bring inflation under control.
“Bulls’ optimism was based on CBRT being allowed to keep rates high for some time, and after last Thursday that looked very promising,” said Henrik Gullberg of Coex Partners Ltd., who previously saw the lira appreciating beyond 6.90 per dollar. “That’s ruined now; it will be hard to find lira bulls,” he said, adding that the currency could now head back to levels when Agbal was appointed.
Agbal’s replacement, Sahap Kavcioglu, pledged on Sunday to use monetary-policy tools effectively to deliver permanent price stability. He also said the bank’s rate-setting meetings will take place according to schedule.
A rush to sell the currency in thin liquidity as trading got underway in Asia overwhelmed support for the lira from state banks, according to an FX trader familiar with the transactions, who asked not to be identified because the person isn’t authorized to speak publicly.
“I expect massive state bank intervention in the short term to hold a line on the lira,” said Timothy Ash, a strategist at BlueBay Asset Management in London, adding that he’s not yet sure where the line will be drawn. “The new governor will be dependent on utilizing the reserve bounty that the former governor left him to smooth his entry into the job.”