(Reuters Breakingviews) - Independent central bankers are under attack around th...
Turkey's new central bank governor Murat Cetinkaya speaks during a brief ceremony at which he officially took over from outgoing governor Erdem Basci in Ankara, Turkey, April 19, 2016.
LONDON - Independent central bankers are under attack around the world. Turkey’s Murat Cetinkaya has become the latest casualty. President Tayyip Erdogan, who wants lower interest rates to boost growth, on Saturday fired the governor who had maintained some credibility by keeping benchmark borrowing costs on hold since September. His replacement, Murat Uysal, will find it even harder to give the president what he wants.
The Turkish economy is suffering after years of credit-led growth fuelled by loose monetary policy. It contracted 2.6% in the first quarter of 2019 after a 3% decline in the previous three months. Following a sharp fall in the lira last summer, Cetinkaya hiked the main interest rate to 24% and kept it there. The policy had some success. Inflation fell to its lowest level in a year in June, though consumer prices are still rising at close to 16%.
Expectations that the new central bank chief might be more willing to comply will put renewed pressure on the Turkish lira. Yet another currency crisis is the last thing Turkey needs. The catalyst for last year’s selloff was U.S. sanctions in response to the detention of U.S. pastor Andrew Brunson. Another round may be imminent. U.S. President Donald Trump’s administration has threatened to penalise Turkey for receiving Russian S-400 anti-aircraft weapons, expected in the coming days.
Cetinkaya’s sacking is a blow to expectations that Erdogan might take steps to rebuild his credibility elsewhere. After a bruising defeat in the rerun of Istanbul’s municipal election on June 23, some hoped the former footballer would remove his son-in-law Berat Albayrak from the post of finance minister, where he has been both influential and ineffective. Saturday’s presidential decree suggests Erdogan is doubling down.
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