Sovereign Analysis / Global

Turkey: Lira set for big moves amid leadership changes

  • Over the weekend, CBRT Governor Murat Uysal was fired and Finance Minister Berat Albayrak resigned
  • TRY has gained c5% in response, reflecting market expectations of a shift towards more orthodox policymaking
  • If policymaking does not materially change and the CBRT fails to hike rates on 19 Nov., strength will be short-lived
Turkey: Lira set for big moves amid leadership changes

On Saturday, President Erdogan fired central bank governor Murat Uysal after just 16 months in the role. Uysal was appointed to head the Central Bank of the Republic of Turkey (CBRT) in July 2019 after Murat Çetinkaya was sacked, amid criticism from Erdogan over his refusal to cut interest rates, ushering in 1,575bps of rate cuts over the following year.

The reason for Uysal’s sacking is unclear, as he mostly complied with Erdogan’s preference for low interest rates. However, amid persistent TRY liquidity, the CBRT hiked the policy rate by 200bps in September and has raised the weighted average cost of funding by almost 700bps since July via backdoor tightening within the rate corridor.

If Uysal’s sacking signals Erdogan's dissatisfaction with recent tightening measures and desire for still more direct control over interest rate policy, it would be extremely negative for the battered TRY. However, if it instead signals dissatisfaction with Uysal’s failure to stem TRY depreciation and Erdogan's willingness to give the CBRT some leeway to tighten more aggressively, it could be a positive inflection point.

Markets have clearly adopted the latter view for the time being. After selling off 20% over the past three months and 30% ytd (the worst among major EM currencies), TRY has rebounded by c5% today, at the time of writing, its biggest gain in two years.

Major EM currencies versus US$ ytd


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