Recep Tayyip Erdogan has sacked Turkey’s central bank governor, raising fresh concerns about the independence of the rate-setter.

Mr Erdogan used a presidential decree, published in the early hours of Saturday, to remove Murat Cetinkaya from his job a year before the end of his four-year term. 

The move by the Turkish president, who had recently complained that high interest rates were hurting the country, comes three weeks before the bank is expected to begin a cycle of monetary policy easing.

Murat Uysal, an economist who spent much of his career at the state-owned Halkbank before becoming one of the central bank’s deputy governor, was announced as the new governor.

The sacking triggered warnings about the erosion of the bank’s independence under Mr Erdogan, a critic of high interest rates who has tightened his grip on Turkish institutions since taking to taking the helm of an all-powerful executive presidency in June 2018.

Durmus Yilmaz, a former central bank governor and a senior member of the opposition IYI party, questioned the legality of the sacking, arguing that it was at odds with “an integral aspect of central bank independence”.

Many investors had clamoured for the removal of Mr Cetinkaya since the central bank pursued an erratic approach last year. The bank at first refused to raise interest rates as the country was gripped by a currency crisis that saw the lira plummet to a series of historic lows. But went on to raise rates to 24 per cent in September.

It won praise for keeping rates on hold even as the economy has slumped, enabling the country’s soaring inflation to gradually come down from a peak of 25 per cent in October to 15.7 per cent last month — although investors were alarmed by its unorthodox use of currency swaps, which disguised a plunge in net foreign reserves.

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Markets were already expecting a small rate cut at the next meeting of the bank’s monetary policy committee on July 25. Some now think that Mr Erdogan will seek to impose a much sharper cut.

Speaking at a press conference in June, the Turkish president said that high rates were “hurting us” and restated his unorthodox belief that they were the cause of high inflation.

“In spite of the fact that high inflation is here as proof of my opinion, unfortunately, some people around me also defend the opposite opinion,” he said. “But I believe, we will solve this also through elaborations and discussions.”

He promised that a “decisive” solution would soon be introduced.

Mr Uysal is a former banker. He studied economics at Istanbul University before pursuing a masters in banking and insurance at the city’s Marmara University, where he specialised in inflation targeting.

Before joining the central bank as deputy governor in 2016, he held senior positions at the state-owned lender Halkbank and Halk Asset Management. 

The central bank said that Mr Uysal, would “continue to independently implement monetary policy instruments focused on achieving and maintaining its primary objective of price stability in line with the duties and responsibilities granted to him by law.” 

Tim Ash, an emerging markets strategist at BlueBay Asset Management, described the changes at the bank as “idiotic.” Writing on Twitter, he said that the central bank’s credibility was already “shot to hell.” He added: “This move just takes it back further.”



Via Financial Times