On Friday, newly re-elected Turkish President Recep Tayyip Erdogan sent the biggest signal yet that he would abandon his unconventional economic policies, which many blame for aggravating a cost of living problem. He appointed a former US-based bank executive to head the central bank.
Hafize Gaye Erkan, 41, will make history by becoming the first woman to head Turkey’s central bank. She graduated from Princeton. She was co-CEO of First Republic Bank, which failed last month as its wealthy clientele withdrew their money following widespread instability in the sector, for a short period in 2021. Her appointment comes after the selection of Mehmet Simsek, a former prominent banker. on the world stage, as Minister of Finance and Treasurer last week. He left politics for five years but returned as Erdogan’s finance minister and deputy prime minister.
Re-elected last month for a third term, Erdogan’s picks for two major financial posts have sparked optimism that he may abandon his belief that lower interest rates will fight Turkey’s runaway inflation. In October, the rate hit an all-time high of 85%, and many people still cannot afford basic necessities like food and shelter. With the currency falling and inflation hovering at a high 39.5%, the next steps for the economy are crucial. Interest rates are a harbinger of the direction the Turkish economy is heading, and that decision will be taken by the central bank later this month.
Erdogan has fired three central bank governors in recent years for resisting his rate-cutting tactics. It must also argue that high interest rates are necessary to control inflation. While an interest rate hike is one way to fight inflation, it also has the unintended consequence of making loans more expensive. After Russia invaded Ukraine and its currency fell against the US dollar, rising food and energy prices became a major issue for many people and businesses.
Erkan served as chief executive of Goldman Sachs and co-CEO of First Republic Bank of San Francisco for the first half of 2021. After the bankrupt bank was seized in May by US regulators, JPMorgan Chase stepped in to take over. She took over from Sahap Kavcioglu, who had overseen the rate cut from 2021. Kavcioglu was named head of BBDK, Turkey’s financial regulator. Erkan will have to restore the central bank “after years of mismanagement, purges and demotions,” as Piccoli said in a note.
