ISTANBUL—Turkey’s economy slid further into turmoil on Thursday after President
Recep Tayyip Erdogan
fired three top officials at the country’s central bank in a midnight decree that drove the country’s currency to record lows.
The firings are Mr. Erdogan’s latest intervention at the bank after he fired three of its governors within two years, most recently installing a chief in March who agrees with his desire for lower interest rates.
Mr. Erdogan dismissed two central bank deputy governors, Semih Tümen and Uğur Namık Küçük, along with a member of the bank’s powerful Monetary Policy Committee, Abdullah Yavaş. Mr. Tümen had been in his post since May, when he was appointed to replace another top official who was also fired by the president.
The turbulence in Turkey’s economy, triggered in part by Mr. Erdogan’s own decisions, adds to political pressure on the government as the public struggles with devalued wages and a rising cost of basic goods like food. Turkey’s economy has also been hurt by the Covid-19 pandemic and instability in the broader Middle East in recent years.
“It creates a great deal of uncertainty and an erosion in trust and confidence in the central bank and economic management,” said Ibrahim Halil Canakci, a former undersecretary of the Turkish treasury and currently an official with an opposition party, referring to the firings.
Mr. Erdogan likely dismissed the officials for resisting his demands for lower interest rates, Mr. Canakci said. The Turkish leader has called for lower interest rates as a part of a strategy to encourage economic growth.
The central bank cut its key policy rate, its one-week repo rate, to 18% from 19% in September after months of public pressure from Mr. Erdogan to make the change.
Mr. Erdogan abruptly fired the previous central bank governor, Naci Agbal, after he raised interest rates in an effort to control inflation. The current central bank governor, Şahap Kavcıoğlu, is a former lawmaker from Mr. Erdogan’s party who has voiced support for lower rates in the past.
The decision to dismiss the officials came after Mr. Erdogan met with Mr. Kavcıoğlu on Wednesday night.
The Turkish lira weakened past nine to the dollar earlier this week and fell an additional 0.7% on Thursday to 9.1541. The currency has shed almost 20% of its value against the dollar this year, among the worst-performing currencies.
The slide in the lira came after Mr. Erdogan threatened on Monday to take military action against Kurdish militants who killed two Turkish police officers in a missile attack in Syria. Turkey has launched several military operations in Syria since 2016.
Investors and analysts said they believe Turkey’s central bank will cut interest rates again by the end of the year, fueling inflation and prompting concerns for potential foreign investors.
“The issue is that in the meantime, the Turkish lira keeps hitting new highs against the dollar. This feeds into inflation and you have this vicious cycle, where Erdogan keeps threatening to cut, the currency depreciates and this further feeds into inflation,” said Uday Patnaik, head of emerging market fixed income at Legal & General Investment Management.
Turkey’s annual inflation rose to 19.58% in September, its highest rate in 2½ years, according to the country’s official statistics agency.
“The fundamentals keep pointing to a higher lira, look at external balances and painfully low reserves. The policies haven’t helped attract capital inflows either,” said Kiran Kowshik, a foreign-exchange strategist at Lombard Odier.
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