(Bloomberg) -- Turkey’s President Recep Tayyip Erdogan abruptly replaced his finance minister amid deepening rifts in the administration over aggressive interest-rate cuts that have undermined the currency and fueled inflation.
Lutfi Elvan will exit after a little more than 12 months on the job and will be replaced with Nureddin Nebati, according to a decree published in the Official Gazette. Nebati, 57, has been a deputy finance minister since 2018 and is perceived to be close to former economy czar Berat Albayrak, a son-in-law of Erdogan.
Turkey’s lira, already trading near record lows, dipped after the announcement on growing concern over Erdogan’s economic policy and the removal of officials who disagree with his priorities. Recent central bank rate cuts the president had encouraged -- at a time when inflation is already running close to 20% -- have punished Turkish assets as investors cast doubt on the unconventional approach to running the economy.
Elvan, 59, had opposed those rate reductions, people familiar with the matter said. Speaking two days before the central bank on Nov. 18 lowered its benchmark for a third straight month, Elvan called on “each institution to do its part within the scope of its own mandate” to tame price increases.
A day later, Erdogan lashed out in parliament at “friends who are still defending” high borrowing costs. “I cannot be on the same path with those” officials, he said. A photo of Elvan not joining the applause for the president as he spoke spread on social media.
Erdogan regularly asserts his unorthodox mantra that high borrowing costs cause inflation rather than curb it.
Before becoming finance minister in November 2020, Elvan chaired a parliamentary committee overseeing legislation on the economy and central government budgets. He holds a graduate degree in economics from the University of Delaware and has served as a minister under three prime ministers: Erdogan, Ahmet Davutoglu and Binali Yildirim.
Turkey’s interest-rate cuts have bucked the global trend of tightening monetary policy as the economic recovery from the pandemic along with strained supply chains fuel a surge in prices. Turkey’s decision to slash four percentage points off borrowing rates since September has pushed inflation-adjusted government bond yields further below zero, while consumer price increases quickened to 19.9% in October.
The lira has weakened more than 40% against the dollar this year, the worst performer among major currencies tracked by Bloomberg.
Erdogan’s ruling AK Party has for decades based its electoral success on rapid economic growth, often driven by reducing borrowing costs to encourage credit expansion.
When the economy contracted during the pandemic, support for Erdogan and his party also fell to all-time lows, prompting him to redouble efforts to solidify support among his working-class base.
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