The turbulence rattling Turkey’s financial markets since the shocking removal of the central bank governor March 20 has caused significant losses for foreign investors, threatening to further scare them away at a time when Turkey badly needs inflows of foreign funds to stabilize its nosediving currency.

In the week prior to the turmoil, foreigners had put about $500 million in fresh investments in Turkish stock shares and treasury bonds, according to central bank data, while another $1.3 billion in “hot money” came from currency swaps between foreign and Turkish banks. The foreign investor portfolios totaled $70.7 billion, including $28.9 billion invested in stock shares, $10.2 billion in government and private-sector bonds and $31.6 billion in bank deposits. The swaps, meanwhile, were estimated to have reached $24 billion. In sum, foreign “hot money” in Turkey totaled nearly $95 billion when President Recep Tayyip Erdogan fired central bank governor Naci Agbal with an abrupt overnight decree, less than five months after appointing him to the post in a bid to curb a mounting trend of dollarization in the country.

Two days before, the central bank had raised its policy rate by 200 basis points to 19% — a move that beat market expectations for a hike of 100 basis points and appeared to please foreign investors. It was the latest in a series of rate hikes under Agbal that had helped the Turkish lira recover to some extent, slow dollarization and restore some confidence in Ankara’s economic management. The sacking of Agbal was all the more shocking because he is known as an Erdogan loyalist who has previously served as a finance minister. His little-known replacement, Sahap Kavcioglu, is a proponent of low interest rates like Erdogan; the president has long argued that high interest rates cause higher inflation, contrary to conventional economic wisdom.

Written by Mustafa Sönmez