Turkish Lira Plunges After Erdogan Fires Central Bank Chief

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Turkey’s currency tumbled on Monday after President Recep Tayyip Erdogan fired the head of the central bank, who had been in the job just four months and had pursued policies aimed at taming inflation. The Turkish lira plunged 7 percent against the U.S. dollar.

The removal of Turkey’s central bank chief, Naci Agbal, signals a return to the unorthodox policies that Mr. Erdogan has long favored, such as cutting interest rates to lower inflation, but which most economists regard as counterproductive. Mr. Erdogan has repeatedly meddled in the central bank’s activities and over the years traders have dumped the lira.

Since his appointment in November, Mr. Agbal has raised the central bank’s benchmark interest rate from 10.25 percent to 19 percent in an effort to slow the overheating economy, control inflation and lure in foreign investment. He had succeeded in pulling the lira up from its record low. The most recent increase in the benchmark rate was on Thursday and he was fired on Friday.

The annual inflation rate was officially 15.6 percent in February but is probably much higher.

The new central bank chief, Sahap Kavcioglu, a university professor and former member of Turkey’s National Assembly, said in a statement that he would continue to fight inflation. But on Monday, the lira was trading at about 7.77 to the dollar, compared with 7.22 on Friday. The plunge in value was a sign that currency traders expect him to bow to pressure from Mr. Erdogan to cut rates, worsening the inflation problem and pushing the country of 82 million people closer to economic collapse.

“We have abandoned our cautiously optimistic view on the lira,” Piotr Matys, a strategist at Rabobank wrote in a note. Mr. Kavcioglu’s comments suggest he is clearly in favor of lower interest rates to stimulate growth, he added.

  • The S&P 500 closed up 0.7 percent on Monday, while the Nasdaq composite finished the day up 1.2 percent and the Dow Jones industrial average gained 0.3 percent.

  • Yields on 10-Year Treasury notes fell to about 1.69 percent.

  • European indexes were mixed. The Stoxx Europe 600 index gained 0.2 percent, and London’s FTSE 100 gained 0.3 percent. France’s CAC 40 dropped about 0.5 percent.

  • Shares in IAG, the airline group which owns British Airways, fell more than 5 percent after the British government’s scientific advisers warned against overseas travel this summer. On Sunday, a government minister also indicated that travel restrictions could be extended. Shares in easyJet and Ryanair also fell.

  • Deliveroo, the food-delivery company, started taking orders for its initial public offering on Monday. The share sale would value the company up to 8.8 billion pounds ($12.2 billion). The company will be listed on the London Stock Exchange, and is the exchange’s largest I.P.O. this year.

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