What does Turkey’s latest bout of currency volatility mean for the country’s banking sector?
As usual, that was one of the first questions asked by markets after president Recep Tayyip Erdogan dispensed with yet another central bank governor on March 18.
Quite why Naci Agbal was sacked after only three months in post remains unclear. Most initially connected it with the central bank’s decision two days earlier to hike rates by a larger-than-expected 200 basis points, given Erdogan’s apparently unshakeable conviction that higher interest rates are the cause of all economic ills, including inflation.
But then rumours began to spread that Agbal had been pushing for an inquiry into how $140 billion of Turkey’s foreign-exchange reserves came to be dissipated in a futile attempt to defend the lira without raising rates during the inglorious two-year reign of presidential son-in-law Berat Albayrak as economy supremo.
Which explanation is correct will likely remain an open question, given the Turkish government’s approach to transparency, for which Erdogan shows about as much enthusiasm as interest rates.
Crystal clear
What is crystal clear is that Erdogan’s brief experiment with economic rationality – which began when Albayrak was finally replaced in November by experienced political operator Lütfi Elvan, and Agbal was installed at the central bank – is over.
Speaking
