The new head of the Turkish central bank meets bankers as lira rockers

© Reuters. FILE PHOTO: A logo of the Central Bank of Turkey is pictured at the entrance of the bank’s headquarters in Ankara

By Ebru Tuncay and Jonathan Spicer

ISTANBUL (Reuters) – The new head of Turkey’s central bank will hold a call to bank chiefs on Sunday afternoon, a day after being appointed to a shock leadership overhaul that saw investors forecast rapid rate cuts and a lira sell-off, two sources told Reuters With.

In his initial comments as governor, Sahap Kavcioglu said on Sunday the bank would continue to adopt a policy to permanently lower inflation, which has been in double digits for nearly four years.

President Tayyip Erdogan abruptly dismissed former central bank chief Naci Agbal in the early morning hours of Saturday, two days after a sharp rate hike, and named Kavcioglu, who like the president is an outspoken critic of the tight monetary policy.

It was the third time since mid-2019 that Erdogan ousted the head of the central bank, which in turn threatened the credibility that Agbal has begun to restore with a more orthodox approach since taking office in early November, analysts said.

“It will be a dark and long day on Monday,” said a local fund manager.

Cristian Maggio, head of EM strategy at TD Securities, said the lira is expected to lose up to 5% initially and potentially 10-15% in the coming days.

“This announcement shows the unpredictable nature of political decisions in Turkey, particularly on monetary matters,” he said. Kavcioglu carries the risk of a “loose, unorthodox and ultimately from now on mostly growth-promoting policy”.

The online call with the heads of Turkey’s major private and public lenders is aimed at addressing the current market and policy situation, said the two sources with direct knowledge of it.

The central bank did not immediately comment on the call. Kavcioglu, a former banker and lawmaker in Erdogan’s ruling AK Party (AKP), visited the central bank headquarters in Ankara on Sunday.

The call could shed light on how politics could change in the face of Kavcioglu’s public demands for loose policy. In a newspaper column last month he said – contrary to monetary orthodoxy – that high interest rates “indirectly lead to an increase in inflation”.

For a graphic on Is the tightening already over in Turkey?


In his less than five months on the job, Agbal had hiked interest rates from 10.25% to 19%, including a 200 basis point rise Thursday to halt inflation near 16% and a recent fall in the lira.

His Hawkish stance lifted the lira from record lows above 8.5 per dollar in November, dramatically lowered Turkey’s CDS risk measures, and began to reverse a year-long trend of funds abandoning local assets.

The lira had gained more than 3% since the hike on Thursday.

After Erdogan ousted Agbal in the early hours of Saturday morning, investors told Reuters they’d worked through the weekend to predict how quickly and sharply Kavcioglu could cut rates – and how much the currency would move from its Friday closing price of Jan. , 2185 would retreat against the dollar.

The heads of some local tax offices estimated that Monday bids could range from 7.75 to almost 8.00. In the Istanbul Grand Bazaar on Saturday, a trader said a dollar bought 7.80-7.90 of the local currency.

Turkish stocks and bonds were also expected to lose volatility in the first week.

Kavcioglu said in Sunday’s statement that political meetings will remain on a monthly schedule, suggesting that rate cuts may wait until the next scheduled meeting on April 15th.

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