At this point, we've lost count of how many central bankers Turkey's authoritarian head Erdogan has fired, so a quick stroll down memory lane helped us remember:
- July 2019: Lira Crashes After Erdogan Unexpectedly Fires Turkey's Central Bank Governor
- Nov 2020: Erdogan Fires Turkish Central Bank Governor, Launching Full-Blown Currency Crisis
- March 2021: Turkey In Turmoil Again: Erdogan Fires Second Central Bank Chief In 4 Months, Sparking Foreign Capital Panic
- May 2021: Erdogan fires deputy governor of Turkey’s central bank
One look at the headlines above reveals that Erdogan, who himself is technically the head of the central bank as he can replace any current central bank governor that does not do his bidding and swap in some figurehead, tends to have a short fuse when it comes to heads of TCMB when they don't follow the crackpot economic "theory" known as Erdoganomics according to which cutting interest rates is the way to lower inflation, not vice versa. It's also why back in June when the Turkish central bank kept rates unchanged despite Erdogan's prodding for a rate cut (even as Turkish inflation was well in the double digits), we predicted - jokingly - that Erdogan was about to fire everyone.
Turkish Central Bank Keeps Benchmark Rate Unchanged at 19%— zerohedge (@zerohedge) June 17, 2021
Erdogan is about to fire everyone
Well, he didn't "fire everyone", but he definitely sent a message and back in September, the central bank shocked the market when it cut rates by 100bps to 18% with consensus again expecting an unchanged decision. The move sent the lira plunging to an all time low.
Alas, it turns out that the pace of cuts was not to Erdogan's liking and earlier today when we noted a Bloomberg headline that Erdogan was meeting with his central bank puppet, Kavcioglu, we said it was "game over" as more heads were about to roll.
*TURKISH PRESIDENT ERDOGAN MEETS CENBANK GOVERNOR: PRESIDENCY— zerohedge (@zerohedge) October 13, 2021
And... game over
This time we were correct, and late on Wednesday evening, President Erdogan fired three members of the central bank’s interest-rate setting committee in a midnight decree after meeting with Governor Sahap Kavcioglu who was appointed by Erdogan to lead the central bank in March, replacing his hawkish predecessor Naci Agbal.
Erdogan removed deputy governors Semih Tumen and Ugur Namik Kucuk, along with Monetary Policy Committee member Abdullah Yavas, according to the decree. He appointed Taha Cakmak as deputy governor and Yusuf Tuna as an MPC member.
According to Bloomberg, the changes followed a meeting between Erdogan and Kavcioglu on Wednesday evening, where the two discussed changes to the committee. Kucuk was the only member of the committee who voted against Kavcioglu’s interest-rate cut last month, thus committing professional career suicide. Yavas didn’t vote because he had contracted Covid-19 in the U.S., where he lives, but that was enough to prompt Erdogan's ire and to get him sacked.
Erdogan probably wanted to fire the head as well, but just last week, Erdogan’s office refuted a Reuters report that said Erdogan is “cooling” on Kavcioglu in the job even though the central banker had cut rates just over a month ago - a move sure to make Erdogan happy - despite explosive inflation crushing Turkey's economy. The inflation rate was 19.6% in September, when Kavcioglu lowered the benchmark interest rate by 100 basis points to 18%.
Predictably, the lira - which has been hitting new all time lows almost daily - dropped to a record low against the dollar, and extended its losses to nearly 5% against the dollar since the governor delivered his surprise interest-rate cut on Sept. 23.
The Turkish presidency posted a picture of the two men together on Twitter after the meeting, and Erdogan’s office described the conversation as “positive.” The presidency also said the two men discussed the general economic situation.
The lira fell 1% to a fresh record low of 9.1883 per dollar...
... and by now it should have become clear to even the most die-hard EM fanatic desperate for carry that any long position in the lira is career suicide. Which is why very soon we may see a wholesale capital flight out of Turkey which leads to total economic catastrophe, not to mention hyperinflation, for the NATO member state.