Staff Writer
With the appointment of former Wall Street businessman Hafize Gaye Erkan as central bank governor on Friday, Turkiye’s recently re-elected President Recep Tayyip Erdogan hinted at a potential change in his unconventional methods to combat inflation.
Erkan, a former managing director at Goldman Sachs and co-CEO of First Republic Bank, will be the first female to lead the central bank.
On Saturday, Erdogan, who is beginning his third term in government, introduced a new cabinet and named Mehmet Simsek, a former economist at Merrill Lynch, as the new finance minister.
Simsek, who served as deputy prime minister and finance minister in previous AKP administrations, is well known for opposing Erdogan’s unconventional policy of reducing interest rates to combat inflation.
Erkan replaced Sahap Kavcioglu, who cut rates even when central banks around the world did the reverse to combat inflation. Erkan’s appointment was announced in the official gazette on Friday.
The bank’s policy rate was lowered under Kavcioglu’s direction to 8.5 percent. In 2021, it had reached 19 percent.
The inflation rate in Turkiye fell below 40% in May for the first time in sixteen months.
“No easy fixes,”
Analysts say investors are less interest in how talented the new economic team is than their ability to resist pressure from Erdogan, who once called high rates “the mother and father of all evil”.
“Simsek & Erkan will be judged on monetary policy moves, inflation and lira,” emerging markets economist Timothy Ash said on Twitter.
Simsek gave a sign of departing from the low-rate policy when he remarked, “we have no choice but to return to rational ground,” shortly after assuming office.
On Wednesday, the Turkish lira, which the central bank had supported before the presidential election in May, hit a new low versus the dollar.
Simsek posted on Twitter after the lira dropped, “As we navigate through domestic and international challenges, we affirm our commitment to rules based policy making to enhance predictability.”
While there aren’t any quick fixes or short cuts, he said, “relax; our experience, knowledge, & dedication will help us overcome potential obstacles ahead.”
“Our top priority right now is to build a strong team and a solid program,”
Simsek posted on Twitter after the lira dropped, “As we navigate through domestic and international challenges, we affirm our commitment to rules based policy making to enhance predictability.”
While there aren’t any quick fixes or short cuts, he said, “relax; our experience, knowledge, & dedication will help us overcome potential obstacles ahead.”
“Our top priority right now is to build a strong team and a solid program,”
Erkan is a Turkiye native who completed his studies at Bogazici University in Istanbul. She received a Princeton PhD fellowship.
She began working for Goldman Sachs as an associate in 2005, and in 2011 she was promoted to managing director.
Later, in 2014, she worked for First Republic, where she was a senior vice president, chief investment officer, and co-chief risk officer.
She was regarded as the natural successor to Jim Herbert, the founder and longtime CEO of First Republic Bank, but she departed the company in December 2021, before it became involved in the US banking crisis in March of this year.
In May, US financial authorities took control of the California bank and sold it to JPMorgan Chase in an effort to put a stop to the unrest that had already resulted in the failure of three other local banks.
