The Turkish Lira Plunges Following Removal of a Central Bank Governor, BTC Searches up
The Turkish lira currency plunged by more than 10% on March
22 after the country’s President Recep Tayyip Erdogan unexpectedly fired
Naci Agbal, the country’s central bank governor. Having initially
touched a new low of 8.280 a dollar, the lira recovered to close at 7.75
a dollar by 20.00 hours GMT.
On the other hand, a day before the lira crashed, bitcoin became the
most searched word in Turkey. As Google trends data shows, searches for
bitcoin spiked by more than 500% as inflation fears grew following
Before his sacking, Agbal, who favored using higher interest rates to
tame inflation, had helped make the lira “one of the best performing
emerging market currency this year.” According to a report, satisfied overseas money managers had reacted to Agbal’s policies by pouring funds into the Turkish economy. The report said:
Overseas money managers had added a net of $4.6 billion
to Turkish stocks and local currency bonds during Agbal’s tenure,
betting that higher interest rates would help limit inflation and
stabilize the lira.
However, some money managers have expressed fears the new governor,
Sahap Kavcioglu will pursue populist policies that are favored by
President Erdogan. Yet in his initial comments following his
appointment, Kavcioglu, who is the central bank’s fourth chief in less
than two years, attempted to calm markets by pledging to maintain the
same objectives as those of his predecessor.
Depreciation of Lira
Nevertheless, the new governor has also pledged “to foster economic
stability by lowering borrowing costs and bolstering growth.” Concerned
money managers believe these remarks could be a signal that the central
bank will in the future “allow the lira to depreciate, and accept
elevated inflation levels, to lower interest rates.” At the time of
writing, Turkey’s interest rates stood at 19%.
In addition to sparking the lira sell-off, the report states that
Agbal’s sacking may have contributed to the plunge of Turkey’s benchmark
Borsa Istanbul 100 stock index by 9.8% on March 22. According to the
report, this plunge is the Borsa Istanbul Index’s “sharpest sell-off
since June 2013 and triggering two trading halts.” Similarly, the
Nasdaq-listed iShares MSCI Turkey exchange-traded fund fell more than
19% in U.S. trading.
In the meantime, the report states that some investors have grown
concerned that Turkey “would restrict their ability to sell local assets
to stem the market turmoil.”However, Lütfi Elvan, Turkey’s Minister of
Finance and Treasury, has issued a statement allaying the fears saying
Turkey “wouldn’t impose capital controls or determine a fixed exchange
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