“There will be no extraordinary meeting of the policy committee at the central bank, nor will any steps be taken to defend the Turkish lira,” the Turkish President’s Chief Advisor and Member of the Economic Policies Board Yiğit Bulut said in a statement on Tuesday.
The Turkish stock market’s main BIS Index fell 10 per cent on Tuesday, and the lira held close to a new record low against major currencies, after the recently appointed central bank governor Naci Agbal was removed from his position on Sunday. Agbal had championed a tight money policy.
Analysts pointed to the danger of a currency crisis, as foreign funds are being removed from the country at a dangerous rate. Turkey’s overall short-term foreign debt, falling due in the next 12 months, reached $140 billion, about one-fifth of GDP, in January. The central bank, however, reports negative foreign currency reserves, and this could lead to a currency crisis.
‘Turkey’s problem is macro-Erdoğanic’
“Turkey’s problem is macro-Erdoğanic, not macroeconomic,” opposition İYİ Party leader Meral Akşener said, at a press conference.
“High interest rates have become necessary. High interest rates are a fever medicine, not a permanent cure. As the treatment is delayed, it is inevitable for the patient to die,” said Akşener, head of the fifth largest party in parliament.
Erdogan’s advisors do seem to be out of touch with economic reality.
Bulut, however, said: “It is a lie that the reserves have fallen to negative.”
Agbal’s successor Sahap Kavcioglu is seen as an AKP ruling party loyalist who, like President Recep Tayyip Erdogan, is opposed to the use of high interest rates to curb soaring inflation, unconventionally arguing that it indirectly pushes up prices.
In fact, the banking system is under severe stress, as Capital Economics analyst Jason Tuvey pointed out in a note: “Senior emerging markets economist at Capital, Jason Tuvey, said in a note to investors: “As we’ve argued before, the country’s banking sector is a key area of vulnerability. Local banks have made significant loans in foreign currency (or FX-indexed), which could start to go bad on the back of the sharp fall in the lira [triggered by the firing of the CBRT governor]. And tighter financial conditions could weigh on banks’ lira-denominated loans.”