Ex-US bank executive Hafize Erkan named Turkey central bank boss

Re-elected Turkish President Recep Tayyip Erdogan has appointed a former US-based bank executive to head Turkey’s central bank, in another sign that his administration is likely to pursue more conventional economic policies.

According to an announcement published in the Official Gazette on Friday, President Erdogan has appointed Hafize Gaye Erkan as governor, making her the first female governor of the central bank. Erkan, 41 years old and educated at Princeton University, previously served as the co-chief executive officer of First Republic Bank and held a managing director position at Goldman Sachs.

President Erdogan secured a third presidential term in the recent elections, a period during which the country has been grappling with a cost-of-living crisis exacerbated by high inflation rates. In October, inflation reached a staggering 85 percent, but in May, it dropped below 40 percent for the first time in 16 months, influenced by a favorable base effect. The base effect refers to distortions in inflation figures caused by exceptionally high or low numbers from the same month in the previous year.

Critics attribute the economic turmoil to Erdogan’s policy of lowering interest rates to stimulate growth, a strategy that contradicts orthodox economic thinking that recommends raising rates to combat inflation. Erdogan, however, argues that his policies will strengthen Turkey’s economy in the long run.

Erkan replaces Sahap Kavcioglu, who had implemented a series of rate cuts since 2021. Kavcioglu, in turn, has been appointed to lead the Banking Regulation and Supervision Agency (BDDK), the country’s banking watchdog.

In a separate development, President Erdogan also reappointed Mehmet Simsek, an esteemed former banker, finance minister, and deputy prime minister who was educated in the United Kingdom. Simsek will now lead the finance and treasury ministry after a five-year hiatus from politics. These appointments of Simsek and Erkan are seen by analysts as a possible indication that Erdogan may shift away from policies that many economists have deemed “unorthodox.”

The appointment of a more credible cabinet, as well as the return of Simsek, is raising hopes among experts that there may be a shift towards more sustainable policymaking. Liam Peach, a senior emerging markets economist at Capital Economics, commented on Simsek’s appointment, stating, “Bringing inflation down sustainably will require a major policy tightening, and the appointment of a more credible cabinet over the weekend provides hope that policymaking may shift in a more sustainable direction.”