ANKARA (Reuters) – Turkey fired its central bank governor on Saturday as political differences between the government and the bank deepened amid economic slump, lira currency volatility and high inflation.
FILE PHOTO: New Turkish central bank governor Murat Cetinkaya speaks during a brief ceremony in which he officially replaced outgoing Governor Erdem Basci in Ankara, Turkey, on April 19, 2016. Cetinkaya, acting as governor since April 2016, has stepped down and replaced by his deputy Murat Uysal, as a Presidential Decree published in the Official Journal shows.
There was no official reason for the dismissal, but markets have speculated in recent weeks that Cetinkaya may be evicted by the government because he is unwilling to cut interest rates.
The central bank has in the past been pressured by President Tayyip Erdogan to lower interest rates to revive an economy that slipped into recession earlier this year.
The Turkish economy contracted sharply for the second quarter in a row at the beginning of 2019 as a severe currency crisis and a rise in inflation and interest rates weighed heavily on total output.
"President Erdogan was unhappy about the interest rate and expressed dissatisfaction at every opportunity. The Bank's decision in June to keep interest rates steady exacerbated the problem with Cetinkaya, "a senior government official told Reuters.
"Erdogan remains determined to improve the economy, and therefore made the decision to remove Cetinkaya," said the official, who spoke on condition of anonymity.
Two other government sources told Reuters that the differences between the government and the governor over monetary policy implementation over recent months have deepened.
"Disagreements between the governor and business ministers have been deepening recently," sources said.
Cetinkaya raised interest rates by a total of 750 basis points last year to shore up the ailing TRYTOM = D3 lira and raised them to 24 percent by September, where it has remained unchanged since then.
Erdogan, whose son-in-law is the finance and finance minister, repeatedly criticized the central bank for maintaining high interest rates.
"The President and the Minister of Finance called for his resignation, but Cetinkaya recalled the Bank's independence and refused to resign," said the other source.
In a statement issued on Saturday, the central bank said it would continue to operate independently and that the new governor would focus on maintaining price stability as its primary objective.
"In his first remarks, Murat Uysal said that the channels of communication would be used at the highest level in line with the objectives of price and financial stability," the bank said.
"In this context, he will hold a press conference in the coming days," it continues.
QUESTIONS ON INDEPENDENCE
Data at the beginning of the week showed that consumer inflation in Turkey was at its lowest level for a year in June, slowing down for the country's first interest rate cut since last year's currency crisis. (nL8N24415X)
The annual inflation rate reached a 15-year high of more than 25% in October, but declined later and is currently just over 15.5%.
Analysts expect the central bank to ease monetary policy at a meeting on July 25, if the lira this month is not hit by impending US sanctions against the purchase of a Russian missile defense system by Turkey.
The lira fell 10% this year after falling 30% during the currency crisis last year.
While the central bank emphasized its independence, a high-ranking banker who did not want to be named because of the sensitivity of the matter raised questions about the Bank's authority when it was released.
"The dismissal of the governor from the service raises doubts about the job security of the chief banker and the independence of the bank. We will be watching the bank closely in the near future, "said the Istanbul-based banker to Reuters.
The main opposition party also pointed to concerns that the move could undermine the credibility of the bank.
"Those who have deposed the Governor of the Central Bank overnight have lost the right to demand confidence in the country's economy, and the central bank is a prisoner held in the palace," said the Opposition Party spokesman. Fakir Ozark, referring to Brogan's office.
Writing by Ece Toksabay; Editing by Shri Navaratnam