After History of Erratic Economic Policy, Erdogan Plunges Turkey Into Fresh

Turkey’s economy is facing fresh turmoil after the surprise ouster of the central bank governor by President Recep Tayyip Erdogan added another chapter to years of unpredictable economic policy, spooking foreign investors and possibly sowing the seeds of a financial crisis.

Last Friday, Mr. Erdogan replaced Naci Agbal with Sahap Kavcioglu, a former member of parliament for Erdogan’s Justice and Development Party, who publicly sided with the president’s calls for lower interest rates, despite inflation hitting 15.6% annually in February.

Mr. Erdogan, who has fired three central bank chiefs in less than two years, prefers low rates as a part of a strategy to encourage growth.

He opposed policies set by Mr. Agbal, who raised interest rates in an effort to fight inflation and help Turkey pull back from the brink of crisis. Mr. Agbal’s policies encouraged investors to pour billions of dollars back into the country since he was appointed in November.

The dismissal of Mr. Agbal triggered on Monday one of the worst single-day selloffs of Turkish lira-denominated assets, as investors scaled back their exposure to the currency. The lira fell 7.5% against the dollar in one day. Mr. Kavcioglu has sought to reassure markets by saying he would curb inflation but hasn’t said whether interest rates will change.