The Turkish lira topped the 8 mark against its US peer for the first time since the end of November. The lira has collapsed more than 12% since it was confirmed that central bank chief Naci Agbal was ousted from his position. The economy is now in turmoil, with concerns that inflation will get out of hand and foreign investors will lose confidence in Turkey’s prospects.
According to the latest central bank data, foreign exchange reserves rose to $53.89 billion in the week ending March 19, up from $52.66 billion in the previous week. The reading occurred before the government gave Agbal, an advocate of policy tightening, his walking papers.
The manufacturing confidence index climbed to 110.8 in March, the highest reading since early 2018. There was an improvement in forecasts for output, total employment, export orders, and fixed investment expenditures. Earlier this week, the consumer confidence index also rose to 86.7 in March, up from 84.5 in the previous month.
Capacity utilization slipped to 74.7% last month, down from 74.9% in February.
It has been nearly a week since President Recep Tayyip Erodgan fired his third central bank chief in a year. Financial markets reacted negatively to the news, with the lira cratering 12% and the main stock exchange falling 9%.
But Erdogan assured the public that everything is fine and the volatility unfolding in the financial markets does not mirror the reality of Turkey’s economy. Erdogan argued that foreign investors should remain confident in Ankara, and citizens should transfer their forex and gold holdings into lira-denominated assets.
I call on foreign investors who invest in our country to trust Turkey’s power and potential. The fluctuations of the past few days most definitely do not reflect the fundamentals of Turkey’s economy, real dynamics, potential or its tomorrow.
Before receiving a pink slip, Agbal had raised the benchmark interest rate by 200 basis points to 19%, noting that policy tightening was necessary to combat inflation. This ostensibly irked Erdogan, who believes that rate cuts spur economic growth and do a better job of fighting inflation.
As a result, Erodgan installed Sahap Kavcioglu, a university banking professor and columnist at a pro-government newspaper. Kavcioglu shares Erdogan’s economic views.
The USD/TRY currency pair soared 1.86% to 8.1011, from an opening of 7.9489, at 19:39 GMT on Friday. The EUR/TRY spiked 2.14% to 9.5568, from an opening of 9.3518.