The Turkish lira and stocks plunged on Monday as officials tried to stem the carnage caused by President Recep Tayyip Erdogan’s abrupt dismissal of his reformist central bank chief.

The lira lost nearly 15% against the dollar on the first day of trading after Erdogan replaced market-friendly economist Naci Agbal with former ruling party lawmaker Sahap Kavcioglu at the crucial post.

It clawed back some of its losses but was still down 9% at 7.93 to the dollar after analysts said state banks intervened to support the lira by selling foreign currencies.

David Madden of the CMC Markets brokerage in London said the rout was driven by “fears that Turkey will impose capital controls” limiting the free conversion of liras into dollars and euros.

The turmoil carried over to the Istanbul stock exchange. The Borsa Istanbul suspended trading twice when automatic circuit breakers kicked in as the broad market selloff approached 10%.

Yields on Turkish bonds rose to record highs and people on the street worried about their savings being wiped out by Erdogan’s decision to fire the man credited with righting the economy in his four months on the job.

“Supporting the government doesn’t mean turning a blind eye to its mistakes,” Sukru Kocak, 36, said on his way to work in downtown Istanbul.

The strong market reaction underscored the trust Agbal had won from investors after years of what many Western analysts view as mismanagement by Erdogan’s economic teams.

Erdogan is known for his unconventional belief that high interest rates cause inflation – instead of tamping it down – and has placed a heavy emphasis on keeping them low to support growth.

Published in The Express Tribune, March 23rd, 2021.

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