On Thursday, the Turkish Central Bank increased interest rates from 17% to 19%. The 200 bps increase was higher than expected but markets positively reacted to the change and the Turkish lira appreciated. Higher interest rates reflect an attempt by the central bank to curb inflation, which stands at nearly 16%.
Despite the positive reaction to the rate hike, President Recep Tayyip Erdogan sacked the head of the central bank, Naci Agbal, making him the third head of the central bank to be fired since mid-2019. The move led to a stock-market sell-off and currency depreciation.
On Monday, the domestic stock market index Borsa Istanbul 100 (BIST 100) tumbled 9.79% as the firing of the Head of the Central Bank caused increased uncertainty and a flight from Turkish assets. The sell-off wiped out the gains of the quarter and resulted twice in a halt of trading.
At the announcement, the Turkish Lira declined 16% against the U.S. Dollar before pulling back to a more modest 7% decline.