Turkish President Recep Tayyip Erdogan has again intervened at the Turkish central bank. The president fired three members of the regulator’s monetary policy committee (MPC) and appointed two new ones in their place.
In the past 2.5 years, Erdogan also said goodbye to three bank governors. Support for current central bank chairman Sahap Kavcioglu also appears to be waning.
Last month, under pressure from Erdogan, Turkey’s central bank cut its key interest rate from 19 to 18 percent, despite an annual inflation rate of nearly 20 percent. The central bank has repeatedly promised that interest rates will always be higher than inflation. Kavcioglu sidestepped the discussion by looking specifically at core inflation, excluding food and energy prices.
That interest rate hike led to a weakening of the Turkish currency. Erdogan’s intervention now put further pressure on the value of the lira. The currency has lost 19 percent against the dollar this year alone.
Turkey is struggling with the consequences of rising raw material prices and droughts that have hit the crops of agricultural products hard. In combination with a weaker exchange rate of the Turkish lira, this has made life in Turkey considerably more expensive in a short time.
Erdogan’s unorthodox economic views complicate the situation. According to the president, the high-interest rates cause inflation to rise. Common policy among economists and central bankers is to raise interest rates to control inflation. Former central bank head Naci Agbal was fired earlier this year after he raised interest rates several times to control inflation.
The MPC reshuffle came after a meeting between Erdogan and Kavcioglu. The dismissed members are said to have opposed previous MPC decisions, such as tapping reserves to support the lira. Several sources report to Reuters news agency that Erdogan is losing faith in Kavcioglu. The two have not spoken much in recent weeks.
The bank’s next policy-making meeting is on October 21.