Reuters-Turkey's lira briefly fell 15% to near its all-time low on Monday (March 22) after President Tayyip Erdogan's shock weekend ousting of a hawkish central bank governor sparked fears of a reversal of recent rate hikes.
Sahap Kavcioglu, a former banker and ruling party lawmaker who shares Erdogan's unorthodox view that high interest rates can fuel inflation, was the third central bank chief abruptly installed by the president since mid-2019.
The dismissal of Naci Agbal reaffirmed the political control that has for years harmed foreign investors' view of what is a major emerging economy.
The currency briefly dipped to 8.4850 to the dollar from 7.2185 on Friday (March 19), near its intraday record low of 8.58 from last November, before Agbal was appointed.
It recovered about half of its losses after Finance Minister Lutfi Elvan said Turkey would keep to free market rules, and at 0930 GMT stood at 7.95 to the dollar, 9% weaker - and about half what it was worth before its last crisis, in mid-2018.
Istanbul's main share index was down 9%, with banks off nearly 10%.
Longer-dated dollar-denominated government bonds suffered their biggest daily drop on record. The 2045 bond fell as much as 9.7 cents to as low as 87.01 - a level last seen in early November.
Five-year credit default swaps, insurance against a Turkish default, surged from Friday's 305 basis points to 464, their highest since Nov. 9.
Erdogan fired Agbal two days after a 2% rate hike that was meant to head off inflation of nearly 16% and shore up the lira, which rose 3% in response.
In less than five months on the job, Agbal had raised rates by almost 9 percentage points to 19% and regained some policy credibility.
After Agbal was sacked, investors said they had worked through the weekend to predict how quickly and sharply rates would be cut - and how much the currency would retreat.
Wall Street bank Goldman Sachs predicted a "discontinuous" drop in the lira, and a "front-loaded" rate-cutting cycle, and told clients it was reviewing investment recommendations.
It said capital outflows appeared likely and a rapid adjustment in the current account might be necessary since markets would shy away from funding Turkey's chronic deficits.
