Analysis  |  March 30, 2021

Turkey – Here we Go Again - March 2021


What does the appointment of the fourth central bank governor in less than two years mean for investors in Turkey?

As have we have seen in the press, and to everyone’s surprise, last week the Turkish government replaced central bank chairman Naci Agbal, just four and a half months after he took office.

Under Agbal’s stewardship the Central Bank of the Republic of Turkey (TCMB) had regained market confidence via a combination of a return to orthodox monetary policy and transparent communication.

The rational for his dismissal was the interest rate hike on 18th March – a 2% rise versus an expected consensus increase of 1%. President Recep Tayyip Erdogan is sensitive towards aggressive monetary policy tightening. The new TCMB Chairman Sahap Kavcioglu, a professor of banking and insurance at Marmara University, is not well known. However, he has been critical of Agbal’s monetary policy tightening.

In Kavcioglu’s first bank communication, he stated the TCMB “will continue to use the monetary policy tools effectively in line with its main objective of achieving a permanent fall in inflation”.

In our opinion this is not 2018 – a currency crisis when investors lost confidence in both the central bank and government simultaneously. Nor is it 2020, when unorthodox policy of using FX reserves to support the currency became unsustainable. 2021 is a repricing of monetary policy uncertainty. We currently take an underweight view on Turkey and will review our positioning after the next central bank meeting.


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