Turkish President Recep Tayyip Erdogan named Hafize Gaye Erkan as the new Central Bank Governor, replacing Sahap Kavcioglu, in a move that may signal a return to more conventional monetary policy.
The announcement, made through a decree in the Official Gazette, completes a makeover of Mr Erdogan’s top economic team after Mehmet Simsek’s appointment as Treasury and Finance Minister. In his time as governor, Mr Kavcioglu never deviated from Mr Erdogan’s belief that lowering interest rates can slow inflation.
Ms Erkan, a former banking executive in the US, is the Turkish monetary authority’s first female chief. She previously worked at Goldman Sachs and San Francisco-based First Republic Bank, which collapsed in May, more than a year after Ms Erkan stepped down as co-chief executive officer.
Her appointment may be taken by markets as a sign Turkey’s monetary policies will normalise after years of ultra-low borrowing costs, causing inflation to soar. Her success will depend on how much autonomy she will enjoy under Mr Erdogan, according to Nick Stadtmiller, head of product at Medley Global Advisors.
“Erkan’s appointment hopefully marks an improvement over the policies of her predecessor,” said Mr Stadtmiller. “The lingering question is whether Erdogan will allow the central bank to raise rates sufficiently to bring down inflation.”
The lira was quoted weaker early in Asian trading on Friday, according to indicative pricing from Bloomberg. It was down almost 2 per cent at 23.5 against the dollar, marking a fresh record low. The quotes reflect market levels and not necessarily traded prices.
The currency has tumbled by 20 per cent this year, more than most almost all emerging-market peers.
“I remain cautious that monetary and economic policy will shift to a more investor-friendly direction as Erdogan remains in the driver’s seat,” said Brendan McKenna, strategist at Wells Fargo in New York. “I would expect lira depreciation to continue.”
Erdogan’s policies
The Turkish central bank has been at the centre of the growth-at-all-costs strategy that Mr Erdogan has pursued since he turned his office into the nexus of all executive power in 2018.
Before installing Mr Kavcioglu as governor in March 2021, Mr Erdogan ousted his three predecessors for tightening monetary policy too much.
Despite price growth reaching a peak of 86 per cent last year, the central bank under Mr Kavcioglu’s stewardship refrained from rate hikes and instead slashed the benchmark to 8.5 per cent from 19 per cent.
Mr Kavcioglu was named the new head of Turkey’s banking regulator, according to a separate presidential decree published on Friday.
Mr Erdogan was reelected in May on promises of further rate cuts before giving control of the economy to Mr Simsek, who immediately signalled that Turkey had no choice but to “to fight inflation on a rational basis”.
The next rate-setting meeting, scheduled for June 22, will show whether Mr Erdogan will acquiesce to tighter policy in his new term.
