The currency was trading Monday at around 8.12 per US dollar, weakening about 12% from Friday. It had slipped even further against the greenback earlier in the morning.
The lira’s fall came after Erdogan dismissed Turkish central bank governor Naci Agbal by way of presidential decree early Saturday. Agbal had served less than five months on the job. He was replaced by Sahap Kavcioglu, a banking professor and former parliamentarian for Erdogan’s ruling Justice and Development Party, known as AKP.
“The shock firing of central bank chief Agbal over the weekend may deal a fatal blow to investor confidence in Turkey,” wrote Win Thin, global head of currency strategy at Brown Brothers Harriman, in a Sunday research note.
In Agbal’s five months leading the central bank, he defended its economic reforms and independence. And just two days before his firing, he hiked interest rates by 200 basis points to 19%, higher than expected.
By delivering that “hawkish surprise,” Abgal’s “days were numbered as he found himself at the receiving end of President Erdogan’s ire,” Win wrote.
“After regaining investor confidence with a series of aggressive rate hikes, Turkey has snatched defeat from the jaws of victory,” he added.
Win said that the fallout could even push the lira to 8.58 per US dollar, the all-time high, and may “even surpass it.”
Erdogan believes in an unorthodox approach to monetary policy based on keeping interest rates low to avoid inflation. Kavcioglu, the newly appointed head of the central bank, has defended similar approaches. He was a member of parliament in AKP from 2015 until 2018, and wrote columns for the pro-government Yeni Safak newspaper.
“At this point, it doesn’t matter who Agbal’s replacement is or what they say, as it’s clear that Erdogan is running the show,” Win said.
— John Defterios contributed to this report.