Turkish Central Bank Governor Who Led Interest Rate Hikes Dismissed Four Months After Inauguration

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] The Turkish government replaced the central bank governor after four months.

On the 20th (local time), the Turkish government dismissed Central Bank Governor Naci A?bal and appointed former Justice and Development Party (AKP) lawmaker ?ahap Kavcıo?lu as his successor, according to the official gazette. Governor A?bal was abruptly removed just over four months after taking office on November 7 last year.

The specific reason for the dismissal has not been disclosed, but local media and foreign news outlets believe that the central bank's decision on the 18th to raise the benchmark interest rate from 17% to 19% likely influenced A?bal's removal.

To prevent the sharp depreciation of the lira, Governor A?bal immediately raised the benchmark interest rate from 10.25% to 15% upon taking office and further increased it to 19% within about four months.

The Turkish lira was trading around 6 lira per dollar in January last year but sharply depreciated to about 8.5 lira per dollar just before A?bal took office. After the central bank's rapid interest rate hikes, the lira's value recovered to approximately 7.2 lira per dollar as of the previous day.

Generally, raising the benchmark interest rate reduces the money supply in the market, leading to lower inflation and an appreciation of the domestic currency against foreign currencies. Conversely, lowering the benchmark interest rate causes inflation to rise and the domestic currency to depreciate against foreign currencies, which is the established theory in modern economics.

However, Turkish President Recep Tayyip Erdo?an has openly expressed dissatisfaction with high interest rates. He has consistently opposed the central bank's high interest rate policy, often stating that "high interest rates are the mother of all evil" or that "high interest rates cause inflation."

In July 2019, he also dismissed former Central Bank Governor Murat ?etinkaya for refusing to lower interest rates.

Turkey experienced a lira crash in August 2018 amid frozen relations with the U.S. due to the imprisonment of an American pastor and tariff disputes. Former Governor ?etinkaya sharply raised the benchmark interest rate to 24% to defend the lira exchange rate.

After dismissing ?etinkaya, President Erdo?an explained the reason by saying, "I told ?etinkaya that lowering interest rates would suppress inflation," adding, "We had different views, and he did not do what was necessary."

This content was produced with the assistance of AI translation services.