Turkish President Tayyip Erdogan has named Hafize Gaye Erkan, a US-based finance executive, as the new head of Turkey’s central bank. This comes amidst widespread anticipation of a shift in monetary policy towards tightening, following years of rate cuts and a brewing cost-of-living crisis.
Erkan, who previously served as the co-CEO of First Republic Bank and a managing director at Goldman Sachs, takes over the role after Erdogan’s re-election and shortly after he signaled a departure from previous unconventional methods with a new cabinet.
As the first female governor of the central bank, and the fifth chief in just four years, Erkan is likely to face significant challenges in implementing a sustained policy change, especially given Erdogan’s past influence over the bank’s independence.
Erkan succeeds Sahap Kavcioglu, who was responsible for a rate-cutting strategy under Erdogan’s guidance that resulted in a significant currency crash in 2021 and led to inflation reaching a 24-year high of over 85% last year.
The announcement of Erkan’s appointment in the Official Gazette also revealed Kavcioglu’s appointment as head of the BDDK banking regulator, which has led some investors to worry that remnants of Erdogan’s unconventional strategies may persist.
Koc University economics professor and former U.S. Federal Reserve economist, Selva Demiralp, suggests the key issue for Erkan will be whether she is allowed the autonomy to guide monetary policy towards more ‘rational policies’.
To gain credibility and set market expectations, Demiralp asserts, Erkan must ensure that previous preferences for low interest rate policies are left behind and do not interfere with her tenure.
Erkan’s policy inclinations remain uncertain due to her lack of formal experience in monetary policy, despite a career that spans Wall Street and U.S. corporate boardrooms. She holds a Ph.D. in financial engineering from Princeton University.
Her tenure at First Republic Bank from 2014 to 2021 is noteworthy, as the bank became the largest in the U.S. to fail since 2008 after being taken over by regulators and sold to JPMorgan this year.