Turkish Central Bank Governor Dismissed... Lira Plunges 17%

Nikkei Index and Futures Fall Simultaneously
Citigroup Says "Limited Impact on Asian Stock Markets"

Former Governor of the Central Bank of Turkey, Naci Agbal
[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] Turkish President Recep Tayyip Erdogan abruptly dismissed Central Bank Governor Naci Agbal just four months after his appointment in November last year, triggering a sharp plunge in the lira.

According to Bloomberg on the 21st (local time), the lira fell about 17% just one day after Agbal was dismissed. On that day, the exchange rate of the lira against the dollar surged from 7.21 to 8.20.

Previously, Governor Agbal was dismissed on the 20th, just two days after raising interest rates by 200 basis points on the 18th. Since his appointment in November last year, he had focused on controlling Turkey's inflation and implemented policies raising interest rates up to 19%. Investors seeking sharp inflation control in Turkey responded positively to Agbal's policies, and the lira had risen about 18% from his appointment until just before his dismissal.

However, President Erdogan has emphasized economic stimulus over price control and has consistently demanded the central bank to lower interest rates. Since the central bank governor did not comply, it is interpreted that Erdogan ultimately replaced the governor. Local economist Selva Deviralp said, "The government is expected to continue pursuing economic stimulus centered on low interest rate policies."

The sudden replacement of the central bank governor has dealt a significant blow to investors' confidence in Turkey's fiscal policy and market. Since 2019, three central bank governors have been dismissed, raising concerns about the erosion of the central bank's independence and increasing distrust in the Turkish market. Giad Daoud, chief economist at Bloomberg, said, "It has dealt a serious blow to the credibility and independence of the central bank," adding, "It will be very difficult for Agbal's successor to restore the central bank's credibility."

The lira's plunge also affected Asian stock markets. As of the 22nd, the Japanese Nikkei index has been fluctuating around 29,280, down about 1.7% from the 19th since the market opened. Nikkei futures also recorded a slight decline to 29,093 compared to 29,183 on the 19th.

On the other hand, there are also views that the impact of the lira's plunge on Asian stock markets will remain smaller than expected. Despite the lira's decline, the dollar-yen exchange rate on the 22nd was around 108.88, similar to the 19th, and the Australian dollar exchange rate was fluctuating at 0.7718, down 0.31% from 0.7742 on the 19th.

Citigroup stated, "Last year's lira plunge did not have a significant negative impact on other countries' stock markets," and predicted, "This time as well, the impact of the lira's plunge will remain limited."

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