Turkish central bank has lost its independence, strategist says

Turkey’ central bank has lost its independence after President Recep Tayyip Erdoğan sacked its governor at the weekend, said Tim Ash, a senior strategist at BlueBay Asset Management.

“We talk/debate about central bank independence, but in Turkey now there is no point debating the level of central bank independence,” Ash said in e-mailed comments. “What we have is a totally dependent central bank.”

Erdoğan sacked governor Murat Çetinkaya by issuing a presidential decree. He appointed his deputy Murat Uysal, a former employee of state-run Halkbank, as his successor. On Saturday, Erdoğan said he fired Çetinkaya because he failed to lower interest rates despite repeated requests, according to local media.

Turkey’s government had pushed Çetinkaya to lower interest rates after the economy slumped into a recession late last year. But policymakers had kept the benchmark rate unchanged at 24 percent since September, when they raised it belatedly by 625 basis points during a currency crisis to help defend the lira and rein in inflation.

“Erdoğan assumes Uysal will cut rates when told, or else he will fire him as well,” Ash said.

Erdoğan gave himself the power to hire and fire the central bank's senior management via a presidential decree last year.

The central bank’s credibility is now back to near zero, Ash said. It was last at such a level last summer, when Çetinkaya delayed rate hikes under government pressure, he said.

Uysal may now think he has “won the lottery ticket” because inflation has slowed, making rate cuts possible, Ash said. Turkey’s inflation slowed to 15.7 percent in June from 18.7 percent the previous month. It had stood at a 15-year high of 25.2 percent in October.