Erdogan holds all the cards ahead of the CBRT meeting on 25 July
Although CBRT deputy governor, Murat Uysal, was named as the replacement, we all know who really holds the power in deciding the future of Turkey's monetary policy now.
The lira has stumbled at the start of trading this week as the news broke out over the weekend, with USD/TRY still down by nearly 2% after having fallen by more than 3% earlier in Asia Pacific trading.
I reckon the fall here may see further repercussions in the coming weeks/months as now the Turkish central bank's credibility is called into question and more likely than not, we know how and what they will decide moving forward after Cetinkaya's dismissal.
Reports said that Erdogan told lawmakers that they need to get behind his view of 'higher interest rates causing inflation' and he is also said to have threatened consequences for those who defied his government's policies.
If the CBRT decides to cut its benchmark rate at the end of this month, it won't only go to show that Erdogan has "won" but the backlash seen in Turkish markets could potentially be brutal. If you're an investor, one of the worst investment decisions you can make is to place your money in a country which doesn't have central bank independence.
Sure, the lira may still hang on in the short-term as we'll see flows from state banks and such to support it. Real money flows also take time to be repositioned and be moved around and there's no hurry just yet since Turkish assets still yield very attractively. But structurally, this just reaffirms the argument that the lira won't be poised to being anywhere close to bullish in the long-term.
