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Erdogan gives Turkish Central Bank chief the boot over rate cuts tiff

Turkish President Recep Tayyip Erdogan fired the governor of the Central Bank of the Republic of Turkey (TCMB), Murat Cetinkaya, on Saturday for refusing to cut interest rates, daily Hurriyet reported.

“We told him repeatedly in economy meetings that he should cut rates. We told him that the rate cut would help inflation to fall. He didn’t do what was necessary,” Erdogan told lawmakers from his Justice and Development Party (AKP) in a consultation meeting in Istanbul.

A presidential decree was published early on Saturday in the official gazette to replace Cetinkaya with his deputy Murat Uysal. Cetinkaya’s tenure was set to expire next year.

The ousted governor declined to resign, though Erdogan and his son-in-law, Minister of Treasury and Finance Berat Albayrak demanded his resignation reminding him of the TCMB’s, Reuters reported citing unnamed sources.

Cetinkaya has long been rejecting Erdogan’s call for lowering the interest rate in an effort to avoid a further plunge of the Turkish lira and higher inflation.

However, Erdogan is known for his economic policy idea that high inflation is the consequence of high interest rates, which contradicts well-established economic principles.

“I agree with the concept of the central bank’s independence. But I should state this clearly,I am against interest rate policies, especially high-interest rate policies,” Erdogan said last month.

Following the removal of Cetinkaya, Erdogan accused him of not following the same line.

“We were not on the same page,” Erdogan said.

The newly appointed governor Uysal on Saturday issued a statement suggesting he would follow Erdogan’s wishes, saying that the TCMB would “independently implement monetary policy instruments focused on achieving and maintaining its primary objective of price stability.’’

However, critics said Cetinkaya’s dismissal once again showed that the monetary policy is under full control of Erdogan, and that rate cuts are on the way soon.

Economist Umit Akcay tweeted on Saturday that the independence of the TCMB which was officially granted in 2001 has ended and its de facto dependence has been legalized.

Wolfango Piccoli from Teneo, a London-based political risk consultancy firm said the “decision significantly undermined whatever credibility the TCMB had left.

Piccoli added that the overall institutional degradation continued unabated.

Unlike in the past, Erdogan does not need approval from the council of ministers to appoint the central bank governor based on the new executive presidency in the country which came into effect last year.

However, Durmus Yilmaz, a former TCMB governor and a lawmaker from the opposition Good Party (IYI), claimed the opposite. Yilmaz argued that the AKP government cannot fire the governor through a presidential decree which is inconsistent with the law on the Central Bank.

“This is an inseparable part of the insurance of the independence of the Central Bank,” Yilmaz said.

Economy analysts claim that Turkey is experiencing its second economic recession under the Erdogan rule, this time as a result of not economic, but political reasons. The row with the United States (US) over jailed American Pastor Andrew Brunson prompted a severe sell-off of the Turkish lira, pushing it to an all-time low against the US dollar.

Erdogan’s AKP government has long been criticized for not undertaking substantial and structural reforms. Critics said it is not just and reasonable to ignore the deficiencies on the government economic policies and instead, to blame them on the governor.

“The governor is not the one and only authority who is responsible for terrible economic conditions. The main responsibility lies with Erdogan who used the central bank and the treasury resources to drag the country into eight elections in five years for his own ends,” said Nesrin Nas, a former politician and a columnist at Ahval news portal.

Another columnist at critical Ahval news portal, economist Eser Karakas said Erdogan’s move sent a political signal that the country might be heading to new presidential and parliamentary elections in the near future, well before 2023.

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