Central Bank of Turkey: Erkan resigns, Karahan assumes leadership
Hafize Gaye Erkan, Governor of Turkey's central bank, resigned on Friday, citing the need to protect her family from a "reputation assassination." Shortly after her resignation, Deputy Governor Fatih Karahan was appointed as her successor, signaling a continuation of her tight monetary policy. The Official Gazette announced Karahan's appointment early Saturday, just two hours following Erkan's unexpected departure.
President Tayyip Erdogan, who appointed Erkan eight months prior in a shift towards more conventional monetary policies after years of promoting low-interest rates that fueled inflation, made this decision. Erkan's tenure marked a notable change in Turkey's economic strategy, characterized by aggressive interest rate hikes that started to temper inflation expectations amidst a prolonged cost-of-living crisis.
Erkan, the first woman to lead the central bank and the fifth governor in as many years, faced dismissal along with her predecessors by Erdogan, undermining the institution's independence and raising concerns about its functionality. Despite her resignation, cabinet leaders assured that the economic program would proceed without interruption.
Karahan, who joined the central bank as a deputy in July after serving as an economist at the Federal Reserve Bank of New York, is regarded as a competent successor. His significant role in the monetary tightening process underscores his capability to maintain the bank's current direction. Erkan, previously a U.S. bank executive, had initiated a significant policy shift by increasing interest rates upon her appointment, steering away from Erdogan's low-rate regime that escalated inflation and drove away foreign investment.
Since then, the central bank elevated its key interest rate to 45% from 8.5%, indicating last week, after a 250 basis-point increase, that it had sufficiently tightened monetary policy to curb inflation. Erkan highlighted the early success of their economic program, pointing to growing foreign reserves and the anticipation of reducing inflation by mid-year as evidence.
However, Erkan resigned amid a campaign against her, aiming to shield her family, including her young child, from further harm. She expressed this decision on the social media platform X, following a defamation campaign that targeted her reputation.
In response to an article by the opposition newspaper Sozcu, which accused a central bank employee of unjust dismissal by Erkan's father, Erkan defended her and her family's integrity, promising legal action against the allegations. Erdogan subsequently criticized the spread of rumors intended to undermine economic progress, implicitly supporting Erkan.
Finance Minister Mehmet Simsek remarked that Erkan's departure was a personal choice and assured the continuity of the economic program. Before Karahan's official announcement, Simsek praised the new governor as a highly respected macroeconomist, recommended by him for the role. Karahan's academic and professional background, including a doctorate in economics and a position as a principal economist at Amazon, lends credibility to his appointment.
Simsek reinforced Erdogan's support for the economic team and its strategy, a sentiment Vice President Cevdet Yilmaz echoed. With inflation reaching nearly 65% last month, the anticipated decrease by June offers hope for alleviating the financial strain on Turkish citizens. The recent interest from global investors like Pimco and Vanguard in Turkish assets reflects growing confidence in Erkan and Simsek's economic policies.
Despite Erkan's resignation potentially raising investor skepticism, assurances from cabinet members about the economic program's stability have alleviated concerns. Since 2018, Erdogan's rate-cutting strategy amid rising inflation led to multiple currency crises, prompting stricter controls over financial markets. However, following his re-election in May and the appointment of a new cabinet and Erkan as the central bank chief, there has been a notable return to conventional monetary policies.