The Turkish currency is falling to a new record low against the dollar. In addition, inflation is stagnating well above the central bank's target. Now the president is changing the head of the central bank. However, Erdogan's policy is responsible for a large part of the currency problems.
In the midst of the slump in the Turkish lira, head of state Recep Tayyip Erdogan dismissed the head of the central bank. According to a now published presidential decree, Murat Uysal will be replaced by former finance minister Naci Agbal. Erdogan had only promoted Uysal from vice-chief to the top of the central bank in July 2019 after he fired his predecessor Murat Cetinkaya in a dispute over what he saw as too high interest rates. Uysal then started to cut interest rates. In September, however, the central bank surprisingly tightened the interest rate rein in the fight against the weakness of the Lira.
In the past few months, the Turkish lira has fallen to an all-time low against the US dollar. On Friday evening, 8.52 Turkish lira were traded for one dollar – a new record. Since the beginning of the year, the Turkish currency has lost almost 30 percent against the US dollar.
The driver of the free fall of the lira is high inflation. In September and October it was just under twelve percent for the year. The target of the Turkish central bank, however, is five percent. The country's badly melted currency reserves have also accelerated the decline. In addition, tensions in the relationship with the EU and the USA as well as concerns about possible sanctions weigh on the currency of the emerging market.
Erdogan is an avowed opponent of interest rates and had hoped that the reductions he initiated, which he had largely initiated, would give the economy more impetus. Just last weekend he declared that Turkey is fighting a "devil's triangle of interest rates, exchange rates and inflation".
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