Turkey’s currency tumbled more than 10% on Monday, putting it on course for its biggest single-day selloff since 2018, after the abrupt replacement of the country’s top central banker late last week.
The turmoil came despite an attempt by the bank’s new governor, Sahap Kavcioglu, on Sunday to reassure markets by saying taming inflation is its main objective. Mr. Kavcioglu had been installed late Friday by President
Recep Tayyip Erdogan,
a day after the central bank had increased interest rates.
In Asian trading hours Monday, the first chance markets had to react to the news, the lira fell from 7.219 per dollar to as low as 8.280, before regaining some ground to stand at 8.055 per dollar by early afternoon Hong Kong time, according to FactSet. In November it hit a record closing low at 8.5249, according to Dow Jones Market Data.
Max Lin, an emerging-markets currency strategist at NatWest Markets, said the personnel change sent a clear signal that President Erdogan doesn’t want to maintain high interest rates to contain inflation. “In the past we have seen the Turkish government change central bank governors basically because they were unhappy with [the bank’s] hawkish interest-rate policy, so now it looks like there’s a reversion to that,” he said.
Mr. Lin said foreign investors were likely to sell Turkish assets, such as bonds, in anticipation of low interest rates and rapid inflation. “High inflation erodes currency competitiveness,” he said.
In a note to clients,
foreign-exchange strategist
Phoenix Kalen
said Turkey has lost “one of its last remaining anchors of institutional credibility.” Ms. Kalen said local individual investors would rush to stock up on dollars again and foreign investors were likely to sell Turkish assets. “Turkey may soon be headed toward another currency crisis,” she wrote.
Last year, Turkey spent billions of dollars to support the lira, as economic shutdowns due to the coronavirus pandemic led investors to pull funds from many developing markets.
Write to Joanne Chiu at joanne.chiu@wsj.com
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
