Erdogan names new central bank governor who may end unusual policies

09 June 2023 - 08:58
By Beril Akman
Hafize Gaye Erkan’s appointment hopefully marks an improvement over the policies of her predecessor.
Image: Bloomberg Hafize Gaye Erkan’s appointment hopefully marks an improvement over the policies of her predecessor.

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 Erdogan’s top economic team after Mehmet Simsek’s appointment as treasury and finance minister. In his time as governor, Kavcioglu never deviated from Erdogan’s belief that lowering interest rates can slow inflation.

Erkan, a former banking executive in the US, is the Turkish monetary authority’s first female chief. She previously worked at Goldman Sachs Group Inc. and San Francisco-based First Republic Bank, which collapsed in May, more than a year after Erkan stepped down as co-CEO.

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 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,” he said Nick 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% at 23.5 against the dollar, marking a fresh record low. The quotes reflect market levels and not necessarily traded prices. It has tumbled some 20% 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 & Co. 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 Erdogan has pursued since he turned his office into the nexus of all executive power in 2018. 

Before installing Kavcioglu as governor in March 2021, Erdogan ousted his three predecessors for tightening monetary policy too much. 

Despite price growth reaching a peak of 86% last year, the central bank under Kavcioglu’s stewardship refrained from rate hikes and instead slashed the benchmark to 8.5% from 19%. 

Kavcioglu was named the new head of Turkey’s banking regulator, according to a separate presidential decree published on Friday. 

Erdogan was re-elected in May on promises of further rate cuts before giving control of the economy to Simsek, who immediately signalled that Turkey had no choice but to “to fight inflation on a rational basis.”

Global Banks Try to Put a Number on Turkish Rate Hike This Month

The next rate-setting meeting, scheduled for June 22, will show whether Erdogan will acquiesce to tighter policy in his new term.

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