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Turkish lira swings on rumours of new central bank firing

The Turkish lira edged up from a new record low on Friday after one of President Recep Tayyip Erdogan’s top aides dismissed claims the leader was about to fire his central bank governor for the fourth time in less than three years.

The currency dropped about 1 per cent to TL8.97 against the US dollar as Reuters reported that Erdogan had lost confidence in Sahap Kavcioglu, even after the governor bowed to pressure to slash the bank’s benchmark interest rate last month. The news agency, citing three sources, said that Erdogan — a notorious opponent of high interest — was frustrated that a rate cut was delayed until September and had not been implemented sooner.

But the lira retraced some of its decline, strengthening by 0.6 per cent, as Fahrettin Altun, Erdogan’s director of communications, described the reported allegations as “fake news” and “lies” on Twitter.

Erdogan, who has ruled Turkey for almost two decades, is grappling with growing public discontent at his management of the country’s economy.

The annual rate of inflation reached almost 20 per cent in September, five times the bank’s official target, with food prices accelerating even more quickly.

But the Turkish president believes, contrary to general economic convention, that high interest causes high inflation rather than curbing it. He has wrangled over monetary policy with a long line of central bank governors.

Speaking on Thursday, Erdogan reiterated his commitment to lower interest rates. “We will bring down inflation and interest just as we have done before,” he said. “But this cannot happen in a single day.”

Kavcioglu, a former ruling party MP, was appointed in March this year. His predecessor, the former finance minister Naci Agbal, was sacked after just four months in the job after he tried to bring inflation under control with a succession of rate rises.

The current governor stunned international investors by slashing the bank’s benchmark interest rate by 1 percentage point last month, bringing it to 18 per cent. The move triggered a fresh run on the lira, which has suffered a severe depreciation over the past decade. One dollar purchased TL1.77 in late October 2011.

Yet some analysts and market participants have speculated in recent weeks that Kavcioglu could be replaced by Semih Tumen, a former central bank official who returned to the institution in May as a deputy governor.

A senior Turkish banker played down the prospect that Tumen, who has a PhD in economics from the University of Chicago, would take over. “If [a change of governor] happens, [the replacement] will be somebody who is much more obedient and stupid.”



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