A debacle at Turkey’s central bank

Turkey seemed poised to become this year’s emerging-market success story. Foreign investors were pouring back, lured by high interest rates. The central bank sounded serious about taming inflation. The lira was outperforming most of its peers. The economy could look forward to a year of strong growth.Then Recep Tayyip Erdogan stepped in. The Turkish president’s shocking decision to sack Naci Agbal, the central-bank governor, in the small hours of March 20th set off an earthquake. The lira plunged by 15% against the dollar as soon as markets opened, before regaining some of its losses. The yield on ten-year lira bonds rose by nearly five percentage points in a day, a new record. The main stockmarket sank by 10%, reversing all the gains it had made so far this year. Investors, who had bought some $19bn in Turkish assets since Mr Agbal’s appointment last November, began fleeing in droves. During his four months in office, Mr Agbal helped to rebuild the central bank’s reputation. Mr Erdogan demolished it with a stroke of his pen.