Turkish President Tayyip Erdogan makes a statement after a cabinet meeting in Ankara, Turkey, on May 17, 2021.

Murat Cetinmuhurdar | Reuters

Turkish President Recep Tayyip Erdogan has replaced a deputy governor of Turkey’s central bank, the latest in a series of evictions that have unsettled investors.

This time, however, the move is less of a worry than previous high profile layoffs – the position was conferred on Semih Tumen, a widely respected head of the economics department at TED University in Ankara who had already worked for the central bank from 2002 to 2018 by shooting Oguzhan Ozbas removed who was a member of the Monetary Policy Committee.

The move marks the departure of the central bank’s fourth policymaker in the past two months.

Announced overnight in an official decree, the reshuffle had little impact on the markets. The dollar was up 0.6% against the lira, which traded at $ 8.4292 on Tuesday afternoon in Istanbul.

This is significantly different from the market’s reaction to Erdogan’s intervention with the central bank in March when he fired former central bank chief Naci Agbal after less than five months.

Exchange offices in Istanbul, Turkey as seen on Oct 28, 2020. Due to the surge in exchange rates and economic instability, people are changing currency and buying Turkish Lira.

Erhan Demirtas | NurPhoto via Getty Images

Agbal’s policies raised interest rates – something Erdogan vociferously opposes despite double-digit inflation in Turkey. And for investors who viewed Agbal as a stabilizing market power, the move was extremely worrying.

The struggling Turkish lira was down more than 16% in early morning trade after the news, to hit 8.4 against the dollar, compared to a closing price of 7.21 the previous day. While temporarily reducing some losses, the currency is back at 8.4 levels, one of the lowest ever against the greenback.

The latest development has been another blow to a country facing coronavirus cases and a new lockdown that threatens to derail its economically crucial summer tourist season again.

Investors unsettled

Agbal was the third head of the central bank to be laid off in two years, sending shock waves through the investing community. This time around, the impact is negligible, says Nick Stadtmiller, director of emerging markets strategy for Medley Global Advisors in New York.

“It’s hard to imagine that a change in deputy governor would result in a market reaction,” he told CNBC on Tuesday.

“Investors have gotten used to the headlines of the central bank governors who were sacked that night, and everyone has already decided how independent the central bank is in Turkey.”

Erdogan’s moves are particularly worrying for investors because they show that the Turkish central bank and monetary policy are not independent and are exposed to the political impulses of the president, say many analysts.

Erdogan, meanwhile, wants to keep lending rates low to stimulate the economy, and he believes that raising rates will raise inflation rather than lower – the opposite of what most economists believe is true.

Erdogan has announced that both inflation and interest rates will be below 10% this year. Turkey’s annual inflation rate was over 16% in April, its highest level since mid-2019. Goldman Sachs expects a high of 18%. The country’s key interest rate remains high at 19%.

As for the future of monetary policy, all eyes will be on Sahap Kavcioglu, the current head of the central bank, who replaced Agbal in March. Kavcioglu, a former newspaper columnist, was known to share Erdogan’s views on interest rates but has not yet cut them citing high levels of inflation.

The next meeting to set interest rates for the central bank will be on June 17th.