Turkish lira weakens anew as central bank worries resurface

ISTANBUL: The Turkish lira weakened as much as 2% against the dollar on Friday as worries loomed over President Tayyip Erdogan's surprise move last weekend to replace the central bank governor with a critic of tight monetary policy.

The lira dropped to as far as 8.09 before trimming losses to 1% to stand at 8.01 at 1300 GMT. It has shed some 10% of its value since Naci Agbal was sacked as central bank governor early on Saturday.

In his first comments as governor last weekend, new chief Sahap Kavcioglu sought to calm markets, saying a permanent fall in inflation remained the goal and that an unscheduled rate-setting meeting was not planned. The next meeting is on April 15.

"The new governor at the very, very least has to hold pat in the April 15 meeting, and ideally with a tightening bias," said Patrick Esteruelas, head of research at Emso Asset management in New York.

"But I think that's kind of pie in the sky," he told Reuters, given Erdogan's public calls for lower rates.

"The moment they start to lower rates, the market will effectively be pricing the beginning of a loosening cycle that will bring real rates back into negative territory, not attract foreign inflows and potentially fuel another round of dollarization by locals," Esteruelas said.

Turkish stocks have also been hit by worries over monetary policy and the main Istanbul share index was down 1.7% on Friday. It has lost around 11% of its value so far this week.

Investors meanwhile sold $29.2 million from Turkish lira-denominated bond funds in the week ended March 24, the biggest weekly net selling this year.