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Turkish lira rallies after finance minister’s shock resignation

Finance Minister Berat Albayrak
A 2018 file photo shows Berat Albayrak, Turkey’s outgoing treasury and finance Minister, wiping his forehead as he talks during a conference to ease investor concerns about Turkey’s economic policy. (AP)

The beleaguered Turkish lira rebounded on Monday after the finance minister’s unexpected resignation and the new central bank chief vowed to stabilize the currency following his predecessor’s unceremonious ouster.

The lira has plunged to record lows against the dollar, losing 35 per cent of its value this year. On Monday, it climbed 5.36 per cent, trading at 8.06 to the dollar, despite there being no information from the government about the future of the country’s top economy job.

Treasury and Finance Minister Berat Albayrak – the son-in-law of President Recep Tayyip Erdogan – announced his resignation on Instagram on Sunday.

Nearly 24 hours later there was no word from the presidency if Erdogan had accepted the resignation, for which Albayrak, 42, cited health reasons.

It was up to the president to appoint or remove ministers and accept resignations or not, said Omer Celik, spokesperson of Erdogan’s ruling Justice and Development Party (AKP).

The presidency would address the issue when it saw fit, he told a press conference. Responding to a question about Albayrak, Celik also added that it wasn’t his place to comment.

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It was unclear if Erdogan would “accept the resignation, sanctioning a politically embarrassing departure for him, given the unprecedented power he granted to the son-in-law,” said Wolfango Piccoli, co-president of research firm Teneo Intelligence.

After becoming an all-powerful executive president in 2018, Erdogan has the authority to appoint ministers and members of the judiciary.

Albayrak – who has been married to Erdogan’s daughter Esra since 2004 – was named finance minister in July 2018, previously serving as energy minister.

“Solving the family dispute will not be easy, but finding a credible candidate for the portfolio will be even harder, if not impossible,” Piccoli said in an emailed note.

In a nerve-wracking weekend for Turkey’s key economy jobs, Erdogan sacked his chosen central bank governor, Murat Uysal, early on Saturday, in the second such move in two years. No reason was given.

“Imagine, must be soul destroying. You resign/get fired and the currency rallies 5 [per cent]. Shows what the market think of their credibility,” tweeted Timothy Ash, strategist at BlueBay Asset Management in London.

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In 2019, Erdogan fired central bank governor Murat Cetinkaya for failing to follow instructions on interest rate policy and installed Uysal.

The bank since delivered nine consecutive rate cuts, only raising the benchmark rate in September for the first time since a currency crisis in 2018. That move was a surprise as the bank is under political pressure – most notably from Erdogan – not to hike interest rates. But it had few options left with the economy hit hard by the coronavirus pandemic.

Erdogan favours rate cuts, as opposed to market pressure for a hike to curb inflation.
He recently railed that Turkey was waging an economic war against the “devil’s triangle of interest and exchange rates and inflation.”

Inflation stood at 11.89 per cent in October.
Naci Agbal, the new governor, on Monday said the bank would “decisively use all policy tools in pursuit of its price stability objective.”

All eyes will be on the bank’s next rate-setting meeting, on November 19.

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Until then, the “current situation and expectations will be reviewed, developments will be closely monitored; and necessary policy decisions will be made,” said Agbal, who was finance minister from 2015 to 2018.

The bank kept its benchmark interest rate unchanged at 10.25 per cent in October, defying analysts who expected a hike aimed at combating inflation and reining in the lira.

Piccoli noted that Agbal has no central bank experience and his appointment shows that “governors are handpicked by Erdogan to pursue his own economic agenda rather than the official mandate of the central bank.”

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