Turkish Central Bank governor Murat Cetinkaya was fired after allegedly resisting an order by President Tayyip Erdogan to apply a 300 point rates cut.
Details of reasons behind Erdogan’s decision to sack Cetinkaya have come to light in a report by Reuters, weeks after the sacking.
Erdogan openly opposes high rates of interest and said that Cetinkaya was ousted because the former governor had not followed instructions.
The details come just before the Central Bank of the Republic of Turkey’s (CBRT) next rate decision on Thursday.
Reuters reported of a fraught relationship which finally ended when Cetinkaya’s sacking was announced shortly before dawn on a Saturday morning two weeks ago.”.
“The governor had overseen interest rate hikes of 11.25 percentage points last year as Turkey battled a currency crisis and rising inflation. These included an eye-watering 625 basis point rise in the benchmark rate to 24% in September,” several sources told Reuters.
With the interference, the inflation went down from a 15-year high of 25% in October.
But the interference in the central bank harmed the market as the economy tipped into recession.
Erdogan has previously criticized interest rate rises, and from the middle of last year appeared to end direct contact with Cetinkaya, the sources said.
“As far as I know, there has been no contact between Erdogan and Cetinkaya for about a year,” said the first source. “The differences in opinion resulted in increased tension between the minister and the governor, and a breakdown in communication,” said a second source.
The source added that besides Erdogan, Treasury and Finance Minister Berat Albayrak and Cetinkaya had a difference of ideas whether “to support government finances by transferring central bank dividends to the treasury ahead of schedule, caps on the interest rates that state banks paid to depositors, and amendments to banks’ required reserves.”
The differences in opinion allegedly resulted in increased tension between the minister and the governor.
A third source confirmed the 300 basis point request and explained that the issue came to a head in the build-up to the central bank’s June 12 interest rate-setting meeting.
However, the monetary policy committee decided to keep rates unchanged by four votes to two as the members considered the factors of high inflation and re-run of the Istanbul mayoral election.
“It was this incident that brought the crisis to a climax… when no rate cut decision was made, they decided not to continue with Cetinkaya,” the second source said.
According to the sources, both Erdogan and Albayrak had sought Cetinkaya’s resignation after the June decision.
“We believed that the person who was not conforming to instructions given on this subject of monetary policy, this mother of all evil called interest rates, needed to be changed.”
Four days after Cetinkaya’s dismissal, Erdogan publicly declared why he removed him.
Turkish economists now expect the Central Bank at its July 25 meeting to cut rates by 250 basis points to 21.5% as Murat Uysal, Cetinkaya’s replacement, told state-owned Anadolu news agency on Monday that the bank had room for maneuver on monetary policy, Reuters reported.