The Turkish lira currency plunged by more than 10% on March 22 after the country’s President Recep Tayyip Erdogan unexpectedly fired Naci Agbal, the country’s central bank governor. Having initially touched a new low of 8.280 a dollar, the lira recovered to close at 7.75 a dollar by 20.00 hours GMT.

Inflation Fears

On the other hand, a day before the lira crashed, bitcoin became the most searched word in Turkey. As Google trends data shows, searches for bitcoin spiked by more than 500% as inflation fears grew following Agbal’s ouster.

Before his sacking, Agbal, who favored using higher interest rates to tame inflation, had helped make the lira “one of the best performing emerging market currency this year.” According to a report, satisfied overseas money managers had reacted to Agbal’s policies by pouring funds into the Turkish economy. The report said:

Overseas money managers had added a net of $4.6 billion to Turkish stocks and local currency bonds during Agbal’s tenure, betting that higher interest rates would help limit inflation and stabilize the lira.

However, some money managers have expressed fears the new governor, Sahap Kavcioglu will pursue populist policies that are favored by President Erdogan. Yet in his initial comments following his appointment, Kavcioglu, who is the central bank’s fourth chief in less than two years, attempted to calm markets by pledging to maintain the same objectives as those of his predecessor.

Depreciation of Lira

Nevertheless, the new governor has also pledged “to foster economic stability by lowering borrowing costs and bolstering growth.” Concerned money managers believe these remarks could be a signal that the central bank will in the future “allow the lira to depreciate, and accept elevated inflation levels, to lower interest rates.” At the time of writing, Turkey’s interest rates stood at 19%.

In addition to sparking the lira sell-off, the report states that Agbal’s sacking may have contributed to the plunge of Turkey’s benchmark Borsa Istanbul 100 stock index by 9.8% on March 22. According to the report, this plunge is the Borsa Istanbul Index’s “sharpest sell-off since June 2013 and triggering two trading halts.” Similarly, the Nasdaq-listed iShares MSCI Turkey exchange-traded fund fell more than 19% in U.S. trading.

In the meantime, the report states that some investors have grown concerned that Turkey “would restrict their ability to sell local assets to stem the market turmoil.”However, Lütfi Elvan, Turkey’s Minister of Finance and Treasury, has issued a statement allaying the fears saying Turkey “wouldn’t impose capital controls or determine a fixed exchange rate.”

What are your thoughts on the lira’s plunge following the appointment of a new governor? You can tell us what you think in the comments section below.