On Monday, Turkey's lira dropped 15% to an all-time low after President Tayyip Erdogan's surprise weekend dismissal of a hawkish Central Bank governor. It ignited fears of a rollback of recent rate hikes.

Sahap Kavcioglu, a former banker and lawmaker in Erdogan's ruling party who agrees with Erdogan that high-interest rates will boost inflation. He was the president's third central bank leader since mid-2019.

According to Reuters, Kavcioglu tried to relieve investor’s fears about a sudden move from a rigid to expansive monetary policy by informing the bank CEOs on Sunday that he had no immediate plans to adjust.

“The government replacing a Central Bank governor whom it thought did not use monetary policy instruments rationally, and thus brought a large financial burden to the economy, who cannot be a defiance of the markets,” said Nurettin Canikli, a deputy head of Erdogan's ruling AK Party.

Naci Agbal's dismissal reaffirmed the political influence that has damaged foreign investors' perceptions. Analysts believe Kavcioglu would reverse the interest rate hikes imposed by Agbal to shore up Turkey's capital account and depleted foreign reserves.

This step, according to Societe Generale analyst Phoenix Kalen, placed Turkey "beyond the point of no return" and invited "financial chaos." Before Agbal was elected, the currency fell to 8.4850 to the dollar from 7.2185 on Friday, close to its intraday record low of 8.58 from November last year. It recovered about half of its losses after Finance Minister Lutfi Elvan said that Turkey must adhere to free-market laws, and was trading at 7.95 to the dollar at 0930 GMT, down 9% from its previous low in mid-2018. The main stock index in Istanbul was down 9%, with banks down nearly 10%.

Long-term dollar-denominated government bonds dropped the most in a single day on record. The 2045 bond dropped as much as 9.7 cents to 87.01, its lowest level since early November. Five-year credit default swaps, which hedge against a Turkish default, jumped from 305 basis points on Friday to 464 basis points, the highest level since November 9.