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Politics

Erdogan fires deputy governor of Turkey's central bank

President's decision to remove a third senior official at the institution in 2 months unnerves investors

ISTANBUL (Financial Times) --Turkey's president has fired one of the deputy governors at the country's central bank, the third senior official to be dismissed in two months in a series of interventions at the nominally independent institution that has unnerved investors.

Recep Tayyip Erdogan issued a decree in the Official Gazette in the early hours of Tuesday dismissing Oguzhan Ozbas, a member of the monetary policy committee (MPC), and replacing him with Semih Tumen, a presidential adviser and a professor of economics at TED University in Ankara.

In March, Erdogan fired Naci Agbal, the third central bank governor in less than two years. The market-friendly Agbal was replaced by Sahap Kavcioglu, a newspaper columnist who shares Erdogan's unconventional view that high interest rates drive, rather than quell, inflation. A week later, Erdogan replaced deputy governor Murat Cetinkaya.

The lira has lost 14 per cent of its value against the dollar since March amid fears the bank under Kavcioglu would not defy Erdogan and keep monetary policy tight to fight inflation, which has been stuck in double digits for much of the past three years.

The lira on Tuesday was little changed in a sign that investors have become inured to Erdogan's meddling at the bank.

"Independence at the Turkish central bank is already basically nonexistent and the president has taken control of monetary policy, with the help of the new central bank governor," said Jason Tuvey, senior emerging markets economist at Capital Economics.

Erdogan has said both interest rates and inflation will be below 10 per cent this year. He has long badgered the central bank to suppress borrowing rates to stimulate the economy.

The newest MPC member has graduate degrees from the London School of Economics and the University of Chicago. Tumen, 44, worked in various positions at the central bank between 2002 and 2018 before teaching labour economics and advising Erdogan on human resources.

"The latest change ... is another step in an expected sequence towards nominating an entire MPC of low-interest rate advocates," Tatha Ghose, an emerging markets analyst at Commerzbank, said in a note to clients.

Just three of the seven committee members have served as policymakers for three or more years, with the rest appointed since 2020.

But their qualifications have little impact on policy that is determined by Erdogan, said Tuvey. More significant is "the symbolism of Erdogan removing people and replacing them with people who are perceived to be his stooges and are more inclined to do what he wants".

Kavcioglu has pledged to keep policy tight until inflation slows to help soothe markets, but he has removed some of his predecessor's hawkish language from policy statements.

The central bank holds its next rate-setting meeting on June 17. It may lower the benchmark rate, now 19 per cent, for the first time under Kavcioglu, encouraged by a relatively stable lira and a likely slowdown in inflation this month after economic activity dropped during a nationwide lockdown to curb a record number of coronavirus cases.

"The central bank governor was clearly brought in to cut rates, and at some point he will do that. The markets haven't let him so far, but when he finds the opportune moment, he will," said Tuvey, who expects a half-percentage point cut next month. "If he doesn't, maybe he'll get the sack as well."

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