Fourth CBRT Governor in Five Years

It’s been a wild week for the Turkish Lira which surged lower by 15% yesterday before hitting buying interest into the lows and reversing 6% against the Dollar. The driver behind the move was the sudden and unexpected replacement of CBRT governor Naci Agbal over the weekend. Agbal had been leading the bank since November last year and has been praised by many for helping lift the Lira off historic lows against the Dollar. Additionally, Naci has been helping battle inflation which although down from the highs around 25% is now back up around 15% following an increase over recent months.

2% CBRT Rate Hike

Last week, the CBRT governor announced a further rate hike of more than 2% on Thursday, taking the country’s headline interest rate up to 19%. The move, which was larger than the market was expecting was a further example of Agbal’s taking aggressive steps to combat surging inflation and a plummeting Lira.

New Appointment Is Well-Known Dove

In Agbal’s place, Erdogan has appointed Sahap Kavcioglu, previously a member of the president’s AK party. The move has been interpreted as a firmly dovish shift with Kavcioglu a well-known opponent of Agbal’s hawkish policy approach. As the fourth CBRT governor in five years, the appointment has done little to inspire investor confidence in the country which has been experiencing a lot of economic whipsaw over recent years. The main Turkish stock exchange fell 16% in response to the news before rebounding 8% so fat today.

Risks For The Turkish Economy

While the appointment of a well-known dove, who is likely to act under Erdogan’s instructions, should be positive for Turkish equities as rate hikes are likely to be reversed, the issue is the impact this will have on the economy. Given surging inflation, rate hikes risk further fuelling the upward spiral in price pressures, destabilising the economy further, leading to increased dollarization and an outflow of investor capital.

Technical Views


The spike higher in USDTRY this week has seen price breaking above the 7.5672 and 8.0367 levels to trade back up to prices not seen since November last year. While price has reversed and traded back under the latter level for now, the bias is still in favour of a continuation higher while the 7.5672 level holds as support. A break below there will turn the focus to the 7.2600 support region from where the rally orginated this week.

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