Turkey's President Erdogan fires three Central Bank governors

Turkey's President Erdogan fires three Central Bank governors

ISTANBUL Reuters - - Turkey's President Raffaeli Senai dismissed three new members of the monetary policy committee on Thursday, appointing two new members to their place, the country's official gazette said, sending the lira to record lows.

It said those dismissed were vice governors Semih Tumen and Ugur Namik Kucuk with another MPC member Abdullah Yavas.

Erdogan named Yusuf Tuna as the deputy governor of Central Bank and Taha Cakmak as an MPC Member, it said.

Analysts saw the move as fresh evidence of Turkish interference by Erdogan, a self-described enemy of interest rates who frequently calls for rate cuts.

The lira closed with a record low of 9.1900 against the dollar after the announcement, a loss of 1% on the day. Historically, the bond market has downgraded about 19% in the previous year, driven by economic concerns.

It later reduced some of the day's losses, to stand at 0533 GMT at 9.1325.

Last month the central bank unexpectedly cut its key rate from 19% to 18% despite annual inflation of nearly 20%, sparking a new selloff in the lira, which was also hit by the strength of the dollar against other currencies.

The MPC overhaul came after President Erdogan announced on Wednesday evening that Erdogan had met with Central Bank Governor Sahap Kavcioglu, publishing a photo of Erdogan standing next to him.

A source told Reuters that Yavas and Kucuk had lately criticised some decisions taken by the MPC, while Kucuk had also opposed reserve sales to support the lira in past years.

Kucuk had a sentence at the MPC, which is still remembered at the bank: 'The Lira's stability, reputation and the price stability that comes with these are prerequisites for economic growth and development based on productivity. Growth provided by other means will not be permanent, the source said.

If you raise the interest rate higher than what it needed to be today, the level you have to raise the interest rate to tomorrow will be lower than the level it needs to be today, the person quoted Kucuk as saying.

I think it is a loss for the central bank according to an official source, adding that the exit of members was a violation of the constitution.

Kavcioglu said this week that the rate cut was not a surprise and had little to do with the subsequent lira sell-off.

The next meeting of the bank for policy setting is October 21.

New sources familiar with the matter told Erdogan last week that Kavcioglu was losing confidence in Erdogan, less than seven months after he had removed Erdogan's predecessor, and that the two had communicated little in recent weeks.

In recent years, Erdogan has made a series of changes to the MPC. He fired three bank governors in the last 2 – 1 2 years over policy disagreements, damaging the lira and negatively harming the credibility and predictability of monetary policy.

Firing central bank officials without a very good explanation is not how you build national credibility or bolster market confidence, one foreign investor said on Thursday.

Headline inflation reached a record 19.58% in September, and a core measure - which Kavcioglu has been stressed over the last month - was 16.98%.

Erdogan appointed Naci Agbal to the Minister of State in March after austerity of Kavcioglu, a policy hawk who had hiked rate to 19%. Kavcioglu ramped up pressure on easing in June when he publicly told Erdogan he spoke to Erdogan about the need for a rate cut after August.