Turkish President Tayyip Erdogan on Friday appointed Hafize Gaye Erkan, a finance executive in the United States, to head Turkey’s central bank, which is widely expected to reverse course and tighten policy after years of rate cuts and a simmering cost-of-living crisis. Erkan, former co-CEO at First Republic Bank and managing director at Goldman Sachs, takes the reins after Erdogan’s re-election and just under a week after he signalled a pivot away from unorthodoxy with a new cabinet. The central bank’s first woman governor, Erkan is also its fifth chief in four years, underlining the challenge she may face delivering a lasting policy turnaround after Erdogan has all but stamped out the bank’s independence in recent years. The 43-year-old replaces Sahap Kavcioglu, who spearheaded Erdogan’s rate-cutting drive that set off a historic currency crash in 2021 and sent inflation to a 24-year peak above 85% last year. Erkan’s appointment in the Official Gazette was accompanied by a decision to appoint Kavcioglu as head of the BDDK banking regulator, which raised concerns among some investors that trappings of Erdogan’s unorthodoxy will remain. The main question for Erkan will be “whether she will be granted independence to steer monetary policy towards ‘rational policies’,” said Selva Demiralp, economics professor at Koc University and a former U.S. Federal Reserve economist. “In order to gain credibility and anchor market expectations with the minimum dose of rate hikes, she has to ensure that the preference towards low interest rate policies…are buried in the past and won’t haunt her.” Erkan’s leanings are unclear given she has no formal monetary policy experience in her career spanning Wall Street and U.S. corporate boardrooms. She has a Ph.D. from Princeton University in financial engineering. She was at First Republic from 2014-2021, according to her LinkedIn profile. This year, the bank became the largest in the U.S. to fail since 2008 after it was seized by regulators and sold to JPMorgan. Analysts now expect Turkey’s central bank to hike interest rates to between 20% and 25% from 8.5% as soon as this month. Such a U-turn on the economy would come as many analysts anticipate turmoil given depleted foreign reserves, unchecked inflation and wide current account deficits.
Source: National News Agency – Lebanon