As markets opened, Turkey’s lira had dropped 16 percent to near an all-time low, following President Tayyip Erdogan’s unexpected weekend decision to replace a hawkish central bank governor with a like-minded opponent of high interest rates.

In the early hours of Saturday, Sahap Kavcioglu, a former banker and ruling party legislator, was fired. Erdogan has shot a central bank leader for the third time since mid-2019. As financial markets reopened for the week, Goldman Sachs and others expected the lira and Turkish assets would plummet.

In a 90-minute call on Sunday, Kavcioglu tried to allay fears of a sudden selloff and a move from rate increases to rate cuts. The currency was trading at 8.4 against the dollar, down more than 16 percent from early November levels. Despite Erdogan’s adamant opposition to high prices, analysts had predicted a dramatic drop. The most recent reform could undo the predecessor’s hawkish and orthodox policies.

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Erdogan fired Agbal two days after a dramatic rate hike aimed at taming nearly 16 percent inflation. Agbal had increased rates by 875 basis points to 19 percent in less than five months on the job. On Thursday, Agbal raised interest rates by 200 basis points, sparking a lira rally of more than 3%.

According to Kavcioglu, the bank will concentrate on permanently lowering inflation, which has remained in double digits for the past four years. According to TD Securities strategist, the overhaul “demonstrates the erratic value of policy decisions in Turkey.” After a currency crisis in 2018, the lira has lost half of its value. In a tweet, Kavcioglu confirmed that policy meetings will continue to be held on a monthly basis.

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