Turkish Central Bank head Naci Ağbal fired after just four months in job

The governor of Turkey’s Central Bank Naci Ağbal was dismissed from his post on Friday. The unexpected news came in the form of a presidential decree published in the official gazette early on Saturday, 20 March.

Banking professor Şahap Kavcıoğlu, a former MP for President Erdoğan’s Justice and Development Party (AKP), is named as his successor.

Ağbal was appointed governor in November 2020, taking over from Murat Uysal when he was dismissed. The latest appointment means Turkey has had three Central Bank governors in two years.

Ağbal came into the job of governor after serving as head of the president’s directorate for financial strategy and budget. Prior to that he was Turkey’s Finance Minister (2015-2018).

In his four month tenure as head of the Central Bank, he managed to check the decline of the Turkish lira, which had lost 50% of its value in the past four years. The currency recovered 18% of its value, while investor confidence in Turkey started to return due to Ağbal deploying more orthodox fiscal policies, while resisting political pressure for lower borrowing costs.

On Thursday, the Central Bank increased interest rates from 17% to 19% in a bid to curb inflation, which had risen for the fifth month running. In February 2021, inflation stood at 15.61%, up from 14.97% in January.

The interest rate hike was higher than analysts had expected, but justified by the Central Bank in a statement it issued on Thursday explaining its decision “to implement a front-loaded and strong additional monetary tightening.”

Governor Ağbal had pledged to maintain a tight monetary policy stance until Turkey reached his 5% inflation target, which he expected to be no earlier than 2023.

Internationally the move was well received, with one analyst, Phoenix Kalen, London-based director of emerging-market strategy at Societe Generale, telling Al Jazeera:

“In a challenging context of domestic business and political pressure against further interest rate hikes, the CBRT has stepped up to the plate and delivered a resounding home run to underline its commitment to an inflation-targeting framework,” adding that Thursday’s move “will go a long way toward bolstering both retail and foreign investor confidence that the CBRT under Governor Agbal will stay engaged in addressing deterioration in inflation expectations.”

Prof. Şahap Kavcıoğlu, the new governor of Turkey’s Central Bank. Photo, cropped, via Twitter


President Erdoğan, who rejects orthodox monetary policy, clearly disagreed, unexpectedly removing Ağbal late on Friday night.

His replacement Kavcıoğlu is a banking professor at Istanbul’s Marmara University. He is also a columnist for pro-government Yeni Şafak newspaper, which ran a critical front page on Friday slamming the Central Bank for the interest-rate hike.

The paper claimed the bank had “turned a deaf ear” to Turkey’s 83 million people, and its decision would hurt economic growth, while benefitting speculators, or “London-based owners of hot money.”

Like President Erdoğan, Kavcıoğlu believes it is possible to bring down high inflation with low interest rates, a view dismissed by most central bankers and economists around the world.