Cenbank governor axed for refusing rate cuts: Erdogan

Turkish lira weakens to 5.8125 after cenbank governor dismissed

President Tayyip Erdogan sacked Cetinkaya for refusing the government's repeated demands for rate cuts, raising questions about central bank independence.

The depreciation is not too surprising given that the reasoning behind the decision appears to be that the governor failed to cut rates and once more it seems that Erdogan is attempting to assert his influence on monetary policy.

Despite the new governor's assurance, critics say the move once again showed that Erdogan was in full control of the monetary policy, and that Turkey would witness a period of rapid rate cuts.

It also could lead to political changes.

Global equities have generally been bolstered by expectations that central banks will keep the interest rates at or near record lows to boost economic growth.

Asian shares fell on Monday (July 8) after strong U.S. jobs data tempered expectations for a Fed rate cut, while the Turkish lira hovered near two-week lows on worries about central bank independence.

Ali Babacan, who had also served as economy and foreign affairs minister in various Erdogan governments, on Monday announced his resignation from the ruling Justice and Development Party, citing deep differences "in principles, values and ideas".

The Turkish lira dropped by three per cent in early trading on Monday before recovering some of its losses.

"There was no indication that this (sacking) was on the cards, but if you look at the US the situation (with President Donald Trump urging the Fed to cut rates), is not too dissimilar now". Over the a year ago or so, Erdogan has been pushing for lower interest rates and has been trying to use a backdoor method to avert a currency crisis. At the time, the central bank raised interest rates sharply, from 17.75 per cent to the current 24 per cent to support the currency and fight inflation. Erdogan has previously called high interest rates as "mother and father of all evil".

Before Cetinkaya's dismissal, Bank of America Merrill Lynch forecast a rate cut of 100 basis points later this month. His dismissal was made possible under new executive powers under a new presidential system that went into effect last summer.

Those expectations were tempered by a United States labor report that showed non-farm payrolls jumped 224,000 in June, beating forecasts for 160,000, in a sign the world's largest economy still had fire.

Investors who bought into Turkey's opportunistic $2.25 billion bond sale last week have been left baffled and battling buyers remorse after the sudden sacking of the country's central bank chief over the weekend.

However, in September a year ago, Turkey increased its benchmark interest rate from 17.5% to 24%.

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