Recep Tayyip Erdoğan has appointed a former US banker as the country’s central bank chief in the latest sign that Turkey’s president may be changing course on his unorthodox policies that have ignited a painful cost of living crisis and sent the lira sinking to record lows against the dollar.
Hafize Gaye Erkan, who has held senior roles at Goldman Sachs as well as failed regional US lender First Republic, will be the first woman to head Turkey’s central bank. She will take the reins from Şahap Kavcıoğlu, who had sharply cut interest rates at Erdoğan’s behest and will now become head of the Banking Regulation and Supervision Agency.
The president’s decision to tap Erkan came just days after he picked Mehmet Şimşek, a former deputy prime minister popular with global investors, as finance minister. He also appointed Cevdet Yilmaz, who is seen as a supporter of orthodox economic policies, as vice-president.
The appointments have stoked cautious optimism among investors that Erdoğan, who was re-elected on May 28, will pivot to more conventional policy as Turkey’s economy suffers intense strain.
Erdoğan, a life-long opponent of high borrowing costs, has pushed the central bank to cut its main interest rate from 19 per cent two years ago to 8.5 per cent, a move that has been blamed for inflaming an inflation crisis and sending the lira plummeting against the dollar. The president is now on his fifth central bank governor since 2019.
Investors and economists have said Turkey must raise rates substantially to slow runaway price growth and woo foreign investors who have deserted the country in recent years.
Turkey’s dollar-denominated bonds have risen in price since it became clear Şimşek would be appointed finance minister, while the cost to protect against a Turkish debt default has eased.
Erkan, a risk management expert, holds a PhD in financial engineering and operations research from Princeton University and led financial institution group analytics at Goldman before spending nearly eight years as a senior executive at First Republic.
The 44-year-old Turkish-American had a choppy end to her tenure at First Republic, where she was appointed co-chief executive in July 2021 before exiting the lender by year-end. First Republic was bought by JPMorgan in a fire sale this year after a run on deposits held by its wealthy clientele.
Erkan will be confronted with an economy in deepening peril. Many economists have warned that Turkey’s war chest is dangerously depleted after the central bank burned through about $25bn in foreign currency reserves this year to finance a yawning current account deficit and attempt to prop up the lira.
The currency has dropped more than 10 per cent this week, including a 0.6 per cent fall on Friday, in what analysts saw as an initial step away from measures put in place in recent years to defend the currency.
Erik Meyersson, chief emerging markets strategist at Swedish bank SEB, cautioned that the retention of former central banker Kavcıoğlu in a new role meant Erdoğan’s economic policies “could return at any time”.
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