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Erdogan Names Ally to Lead Central Bank After Removing Governor

(Bloomberg) — Turkey President Recep Tayyip Erdogan removed the country’s central bank governor, appointing his former Finance Minister Naci Agbal as the new head of the monetary authority following weeks of losses in the nation’s currency.The decision, published in the Official Gazette on Saturday, ended Murat Uysal’s term at the central bank a little more than a year after he was made the governor.The abrupt removal follows weeks of declines in the currency, which weakened to a record low on Friday. Uysal had been raising borrowing costs through a combination of rate increases and back-door measures since August but failed to provide enough of a support for the currency or to rein in inflation, which is hovering at double digits, compared to the official target of 5%.Agbal’s appointment puts the former finance minister in the uncomfortable position of having to meet investors’ expectations to stabilize the currency and balance them with the demands of Erdogan. The Turkish president casts a long shadow over monetary policy and believes that high borrowing costs fuel inflation. Most central bankers around the world believe the opposite is true.Changing GovernorsUysal himself was handpicked by Erdogan in July 2019 to replace a governor who had failed to comply with the president’s wishes to cut interest rates. He delivered 1,575 basis points of rate cuts in nine consecutive steps following his appointment, leaving Turkey’s inflation-adjusted borrowing costs among the lowest in the world.While that helped Erdogan’s government provide much-needed support to the $740 billion economy during the coronavirus pandemic, it also amplified inflationary pressures and weighed on the lira. It weakened to record low of 8.5793 per dollar on Friday, extending this year’s declines to over 30% to become the worst-performing emerging market currency tracked by Bloomberg.The central bank’s rate-setting committee led by Uysal gradually tightened monetary policy to stem the currency’s losses but it often did so without outright hikes to the policy rate, drawing investors’ ire. Uysal surprised investors last month by holding the benchmark one-week repo rate, quashing hopes that the monetary authority was determined to tighten policy and curb inflation.In his last public appearance as the governor, Uysal last month said he could tighten policy further to rein in inflation, which accelerated to 11.9% in October. Familiar FaceWhile Agbal is a household name for many Turkey watchers from his time as finance minister until 2018, the 52-year old former bureaucrat has never served at the monetary authority. That said, Agbal worked with the likes of Mehmet Simsek and Ali Babacan, who were widely regarded as Erdogan’s former economic A-team that delivered years of solid growth.Before the appointment as the central bank governor, Agbal had been serving as head of the Presidency Budget and Strategy Office since 2018. He is succeeded by Ibrahim Senel, according to another presidency decision published in the Official Gazette.(Updates with more details throughout.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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