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Exclusive-Erdogan is cooling on his latest central bank chief, sources say By Reuters

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© Reuters. FILEPHOTO: Turkish President Tayyip Turkey in Sochi Russia, September 29, 2021. Sputnik/Vladimir Smirnov/Pool via REUTERS

Orhan Koskun and Nevzat devranoglu

ANKARA (Reuters] – Turkish President Tayyip Turkey is losing trust in Sahap Kavioglu, the central bank governor. This comes less than seven months since he fired his predecessor. Three sources close to the matter stated that the two had communicated very little over the last weeks.

Due to the sensitive nature of the issue, anonymous sources claimed that Erdogan is frustrated at having an interest rate reduction delayed until last month. They said it was not clear what Erdogan would do, if any.

Requests for comments from the presidential office regarding Erdogan’s confidence at Kavcioglu were not answered.

The president has abruptly fired three bank governors in the last 2-1/2 years over policy disagreements, roiling the lira and badly harming https://www.reuters.com/world/middle-east/eye-polls-turkeys-erdogan-may-regret-rate-cut-he-pushed-2021-10-04 the credibility and predictability of monetary policy.

Analysts believe that the surprise rate reduction last month was evidence of political interference. Erdogan is a self-described enemy to interest rates and has long sought stimulative measures despite high inflation. As a result, the lira plunged to new records.

Erdogan hasn’t spoken publicly on the rate cuts, and the bank is not able to comment about allegations of political interference with its monetary policy.

Meral Aksener (leader of IYI Party), said that Erdogan was likely to fire Kavcioglu as it reflected the President’s tradition of “washing its hands” after making bad decisions.

Sources close to Erdogan’s presidency said that Erdogan was disappointed Kavcioglu couldn’t lower the inflation rate in recent months.

According to one person familiar with the matter, “The President’s faith in the Central Bank Governor is broken.”

The person stated that he expected him to cut the rate quickly. The person said that the interest rate was not cut, but instead it was maintained for several months.” This issue is creating serious problems. Erdogan doesn’t meet Kavcioglu nearly as often.”

The central bank didn’t respond when Kavcioglu was asked about whether he still held the president’s confidence.

Two other sources confirmed that the disagreement was there and pointed out the risks of replacing the fourth chief central bank officer – three more in the past 12 months – due to the volatility in financial markets.

According to a second source, Kavcioglu is “not having a healthy conversation with the president anymore.” My concern is that the president’s policies might be attacked now, rather than the central bank governor.

“EXPIRATION DATE”

The bank lowered its key rate from 19% to 18% in October despite increasing price pressure.

In September, headline inflation soared to 19.58% (a 2 1/2 year record), while core measures – Kavcioglu had been stressing for the past month – were 16.98%.

Analysts claim Erdogan’s tighter monetary policies have contributed to more than half of the drop in the currency in three years. That is during a period when inflation was mostly in double digits.

Both of these have eaten into Turks’ earnings, and the president is in the lead on opinion polls for elections by mid-2023.

Erdogan named Kavcioglu to the position in March, after removing Naci Agbal (a policyhawk who raised rates up to 19%). Erdogan increased the pressure to ease in June by publicly stating that he had spoken with Kavcioglu regarding the necessity of reducing rates after August.

According to the first source, Kavcioglu told the president in recent months that inflation would drop by August. Rates and then rates will follow. However, he did not give the best scenario. At the end of it all, inflation accelerated only slightly.

The unexpected rise in inflation this year has been driven by rising commodity prices and post-pandemic supply issues.

Aksener is being considered as an opposition candidate for the presidency. He said Erdogan’s interfering with the central bank was a “monstrous” system that has depreciated and increased the country’s foreign debt.

Kavcioglu’s expiration date (in) the system that grinds bureaucrats to a powder like grinding garbage is nearing, she stated to party members in parliament.

Additional reporting by Jonathan Spicer and editing by Toby Chopra



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