LONDON (Reuters) - Turkey’s lira and dollar bonds rallied on Monday after the departure of central bank Governor Murat Uysal and Finance Minister Berat Albayrak over the weekend, with Naci Agbal taking over at the central bank.
Analysts are divided on whether the overhaul will mark a lasting change in monetary policy before the next regular central bank meeting, scheduled for Nov. 19.
The lira TRYTOM=D3 has weakened more than 27% since the start of the year.
Below are comments from analysts on the recent events.
PIOTR MATYS, SENIOR EMERGING MARKETS FX STRATEGIST, RABOBANK, LONDON
“This unusual set of events could mark a shift towards orthodox policies, which would provide the lira with a much needed respite.”
“The latest reshuffling at the CBRT accompanied by the resignation of Treasury and Finance Minister Albayrak have triggered a long-overdue correction following the parabolic move higher in USD/TRY. We are modestly optimistic that an important short-term top is in place, although this depends on the scale of any rate hike and Albayrak’s successor.
“That said, there is a substantial difference between a correction and a sustainable recovery. Much higher interest rates and a strong commitment to structural reforms – ideally overseen by the IMF are required to adopt a long-term bullish view on the lira. It is too early for that and we need to witness concrete steps first from the CBRT and the Erdogan administration.”
ERIK MEYERSSON, SENIOR ECONOMIST, HANDELSBANKEN, STOCKHOLM
“Agbal is a good policymaker, he’s a decent bureaucrat and he’s an Erdogan loyalist. Putting him in charge of the central bank doesn’t scream central bank independence to me. It tells me that they want somebody who can basically talk to markets.
“The problem with the combination of Uysal and Albayrak was that none of them were really good speakers when it came to talk to investors and so on. They way I see it is that this is a way to buy time. The statement from the TCMB this morning was just that.”
JAMES MCCORMICK, GLOBAL HEAD OF DESK STRATEGY, NATWEST, LONDON
“It (the Turkish lira) is the cheapest currency in the G30 universe according to our framework, but we still do not see a case for buying it. Until Turkey adopts a much more restrictive monetary policy, downside risks to the currency remain. President Erdogan’s decision to replace the Central Bank Governor over the weekend is not especially encouraging.
“Until Turkey adopts a much more restrictive monetary policy, downside risks to the currency remain.”
WIN THIN, GLOBAL HEAD OF CURRENCY STRATEGY, BROWN BROTHERS HARRIMAN, NEW YORK
“Turkish political risk jumped over the weekend. First, President Erdogan fired central bank Governor Murat Uysal. He was replaced by former Finance Minister Naci Agbal, who has no experience in monetary policy but regarded as a market-friendly technocrat. Many now expect Agbal to quickly hike rates aggressively to stabilize the lira, as he probably would not have taken the post without freedom to pursue orthodox policies.
“However, this notion was undermined by the subsequent resignation of economic czar Albayrak, who also happens to be Erdogan’s son-in-law. The reason given was health reasons, but there is obviously more to this than meets the eye.”
TATHA GHOSE, FX & EM ANALYST, COMMERZBANK, LONDON
“The situation is far more serious than when Erdogan fired Murat Cetinkaya in 2019. Why? Because at the time, Turkey bulls still had some way to hold up a storyline that Cetinkaya’s firing was an individual issue. We think that Erdogan’s broader attitude has been sufficiently clarified: he has fired the same central bank governor he himself appointed just when he began to hike rates.
“What was crucial in Erdogan’s action over the weekend was not the particular person being appointed or particular interest rate level which might result, but the use of the presidential decree to confirm that no other policy direction was permissible: the central bank absolutely has no independence. It is crucial to grasp this distinction.”
EHSAN KHOMAN, HEAD OF MENA RESEARCH AND STRATEGY, MUFG BANK, DUBAI
“These announcements are coming at a time of elevated market uncertainty surrounding the Turkish macro backdrop.
“Whilst our conviction that conventional rate hikes are still warranted given macroeconomic developments, we believe these latest developments accelerate the timeline. With depositors needing to be compensated for the risk of holding TRY with positive real rates and confidence, we believe the new CBRT Governor Agbal will follow through with a strong tightening signal either at the next MPC meeting on 19 November, or earlier. Whilst the magnitude of a potential hike in the one-week repo rate (currently at 10.25%) is unclear, we view that an rise to the level of the effective policy rate (which is ~14%), is entirely conceivable, especially should pressure on the currency continue to build in the days ahead.”
Reporting by Reuters team in Ankara, Istanbul and London, compiled by Karin Strohecker; editing by Larry King
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