Corporate Debt Restructuring Masterclass

18 July 2022 (Mon), 5pm Singapore/HK time

Yet again, the Turkey Central Bank chief Naci Agbal was fired by President Erdogan on Saturday. He was appointed in November last year to restore the credibility of the institution and raise confidence in markets. Agbal hiked rates last week by 200bp to 19% to fend-off inflation, which was about 16% and has stabilized the Turkish Lira, which had fallen over 25% in 2020 before he took the helm. The Lira plunged over 15% since the sacking. “I expect massive state bank intervention in the short term to hold a line on the lira… The new governor will be dependent on utilizing the reserve bounty that the former governor left him to smooth his entry into the job” said Timothy Ash, a strategist at BlueBay Asset Management.

Naci Agbal is replaced by Sahap Kavcioglu, a former member of parliament for Erdogan’s ruling AK Party (AKP). Barron’s reports that Kavcioglu has written columns for a pro-government newspaper heavily criticising Agbal’s moves to raise rates. Barron’s notes that analysts say the new central bank chief subscribes to Erdogan’s view that higher interest rates cause inflation. He would be the fourth central bank chief in five years. “There is now a very real chance that Turkey is heading for a messy balance of payments crisis” Jason Tuvey, analyst at Capital Economics. Turkey’s outlook was recently revised to stable by Fitch noting the improved confidence by the central bank.

Despite the developments, Turkey’s dollar bonds were stable – its 7.625% 2029s were at 112.1, yielding 5.7% and its 4.875% 2043s were at 81.3, yielding 6.5%.

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