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Türkiye, the lira collapses: Erdoğan has kicked out the governor

Following Turkish President's Ouster of Cetinkaya, Markets Fear Central Bank Independence at Greater Risk

Türkiye, the lira collapses: Erdoğan has kicked out the governor

In Turkey, yet another economic-political twist in recent weeks triggers the reaction of investors on the currency market. Turkish lira, after losing more than 2 percentage points against the dollar, it currently stands at 5,728 dollars (-1,8%), realizing the most significant drop in recent months, after the mini-rally carried out between May and June. The cross against the euro is instead at 6,43 lire for one euro, but it had reached 6,501, against 6,32 at Friday's closing.

The decision of the president pushed the sales Recep Tayyip Erdoğan by remove from his post, forcing him to resign, the governor of the Central Bank Murat Cetinkaya, replacing him with his deputy, Murat Uysal. A bolt from the blue for the markets which has raised fears relating to the maintenance of theindependence of the central bank from the government. Above all, what is worrying is the prospect of finding yourself faced with an institution subservient to Erdogan's policies, also because the possibility of making the change comes precisely from the constitutional reform that has expanded the powers of the Turkish leader, giving him almost absolute room for manoeuvre. 

In the official note announcing the news, the name of Cetinkaya is never mentioned, nor is any reason for the change given. the press release only reads that the new one with the governor "the Bank will continue to implement independently monetary policy tools focused on achieving and maintaining its primary objective of online price stability”.

In reality, according to analysts, the fault of Çetinkaya, who had been president of the Central Bank since 2016 and whose mandate should have expired at the end of 2020, was to failing to cut interest rates despite Erdoğan's repeated requests, convinced that the cut could have helped fight inflation (at 15,5%), giving a boost to growth. Of the opposite opinion, Çetinkaya, who last year had raised the reference rates by 625 basis points. Since September, the cost of money has stopped at 24 percent. Uysal, for his part, would have positions closer to those of Erdogan and is among the "doves" of the Turkish Central Bank. According to analysts, the institute could now begin to loosen the monetary policy already during the meeting of 25 July.

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