Turkey heads for its next crisis after the lira plunges by 15%
Turkey sacked its central bank governor after just four months in the job, sending the lira down by 15% against the dollar and stocks down by 9%.

Which building boasts the world’s “fastest revolving doors”? asks The Economist. Turkey’s central bank is surely a contender. Three governors have been fired in less than two years by capricious president Recep Tayyip Erdogan. Naci Agbal, the latest boss, was removed at the weekend after just four months in the job. That sent the Turkish lira plunging by 15% against the dollar. Turkish stocks tumbled by 9%.
Agbal’s sin was to have raised interest rates, a big no-no with Erdogan, who subscribes to the eccentric view that higher interest rates bring higher inflation (all economists and analysts believe the opposite). Turkish inflation hit 15.6% last month, prompting Agbal to raise interest rates two percentage points to 19%.
Turkey is not the only emerging market under pressure. Higher US Treasury bond yields have strengthened the dollar. That has prompted central banks from Brazil to Russia to hike interest rates in order to defend the value of their currencies. New Turkish central bank governor Sahap Kavcioglu, an Erdogan ally, looks poised to reverse Agbal’s interest-rate hikes next month. That reduces the lira’s appeal to investors, prompting them to sell it.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
This affair is a reminder of the importance of independent central banks, says John Authers on Bloomberg. There are many leaders with odd economic views, but most leave monetary policy to the experts. Autocractic Erdogan cannot resist the urge to meddle.
A familiar script
The next steps are predictable, says Phoenix Kalen of Societe Generale. Kavcioglu will first try to use the central bank’s dwindling currency reserves to defend the lira, “lose the currency battle with markets, and ultimately have to engage in emergency” interest-rate hikes, precisely what he wanted to avoid in the first place. Capital controls could also be in the pipeline. Expect “a vintage emerging markets crisis”.
Trouble in one emerging market can quickly spread to others, notes Russ Mould of AJ Bell. When Malaysia imposed capital controls in 1998, global investors fled from other emerging markets for fear of similar measures. The turmoil rippled worldwide, sending the FTSE into a bear market.
Other big emerging markets look better insulated this time, says William Jackson of Capital Economics. All appear to have the currency reserves they need to ward off a crisis, leaving Turkey as a struggling outlier. Foreign investors have also learnt their lesson from the 2018 lira crisis: non-resident holdings of Turkish assets have fallen by half in dollar terms since then. That reduces the odds that trouble in Turkey will spread beyond its borders. The latest bout of erratic policymaking is bad news for Turkey. A weaker lira will bring higher inflation; the banking sector looks to be in trouble. But it should have a “limited” impact further afield.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
New faces don’t solve old problems – why strategy also matters when it comes to investment trusts
Opinion Changing managers often fails to boost a trust’s performance, says Max King
-
How to profit from silver’s record rise
Silver often lets investors down, but there may now be room for further gains, says Dominic Frisby
-
Are venture-capital trusts worth investing in?
Venture-capital trusts are a tax-efficient way to invest in early-stage companies. But are they worth the risk?
-
'Investors should back the AI maximalists'
Polar Capital is bullish on AI and believe that the sector is far from being a bubble
-
Waiting for a UK REITs rally – is real estate poised for a rebound?
Investors are still cautious about UK REITs. Private equity is snapping them up. One view must be wrong, says Cris Sholto Heaton
-
'It’s time to close the British steel industry'
Opinion The price tag on British steel is just too high. It's time for Labour to make a grown-up decision and close down the industry, says Matthew Lynn
-
Last orders: can UK pubs be saved?
Pubs in Britain are closing at the rate of one a day, continuing and accelerating a long-term downward trend. Why? And can anything be done to save them?
-
Global investors have overlooked some of China’s best growth stocks
Opinion Dale Nicholls, portfolio manager, Fidelity China Special Situations, highlights three Chinese businesses where he’d put his money