Turkey’s currency has tumbled the utmost amount as 14% after President Recep Tayyip Erdogan sacked the country’s financial organization governor over the weekend.
Naci Agbal had been credited as a key force in pulling the lira back from historic lows.
Mr. Erdogan replaced him during a surprise shift on Saturday, the third central bank governor exit in under two years.
Mr. Agbal, appointed in November, had been raising interest rates to fight a rate of inflation running above 15%.
The removal has shocked both local and foreign investors who had praised Turkey’s central bank’s recent monetary policy. The fallout from the sacking hit shares on the Istanbul stock market and raised concerns about the impact of Turkey’s borrowing costs.
After dropping sharply, the lira then recovered some ground to face about 8% lower against the US dollar. Trading on the exchange was suspended for a period after a sharp fall in share prices triggered automatic circuit breakers.
“The authorities are getting to be left with two choices, either it pledges to use interest rates to stabilize markets, or it imposes capital controls,” said Per Hammarlund, senior strategist at SEB Research.
“Given the increasingly authoritarian approach that President Erdogan has taken, capital controls are looking a bit like the presumably choice.”
The lira was at one point the only performing emerging-market currency of 2021, having recovered almost a fifth from a low against the US dollar.
Last week, the Turkish currency rose strongly after Mr. Agbal increased interest rates by 2 percentage points, double what economists expected.
Investors are calling for tighter monetary policy in Turkey to tame its high rate of inflation, as prices rise rapidly within the country.
There are now concerns that Mr. Erdogan’s decision to place Sahap Kavcioglu within the role could erode the gains made during Mr. Agbal’s short tenure.
Mr. Kavcioglu could also be a little-known professor of banking and a former lawmaker from the ruling Justice and Development Party. he’s known to oppose high-interest rates as to how of fighting inflation.
Turkey’s rate of interest stands at 19% which has attracted foreign investors to park their take advantage of the currency.
In a statement on Sunday, the financial institution said it “will still use the monetary policy tools effectively in line with its main objective of achieving a permanent fall in inflation”.