Turkey’s central bank has a new governor, Hafize Gaye Erkan, who is the first woman to hold the position. She replaces Sahap Kavcioglu, who followed a policy of slashing interest rates despite rising inflation of around 40%. Erkan is Turkiye’s fifth central bank chief in four years and was the first woman under the age of 40 to hold the title of president or CEO at one of America’s 100 largest banks. She has a doctorate in financial engineering from Princeton and previously worked as First Republic’s co-chief executive officer. Following her new appointment, there are now 23 female central bank governors around the world.
Erdogan has always been opposed to interest rate hikes and has focused on economic growth, investment and exports. However, economists believe that Erkan’s appointment may indicate that Turkey will now follow orthodox economic policies, including interest rate hikes. The new governor’s policy preferences are unclear, however, as she has previously worked only in the private sector. It also remains to be seen how much independence she will be granted, especially with local elections approaching.
The retention of Kavcioglu as head of the Banking Regulatory and Supervision Agency (BDDK) “risks becoming an unwanted deadweight to what could otherwise have signaled fresh and significant policy momentum,” according to Erik Meyersson, chief emerging markets strategist at the European financial services group SEB. Meyersson believes that markets will likely look to test the extent of the new mandate from the presidential palace, and said that front-loaded rate hikes would be a good start.
The central bank’s monetary policy committee will have its first meeting under the new governor on June 22, and an increase in interest rates is expected. Ehsan Khoman, head of emerging markets, ESG and commodities research at MUFG Bank in Dubai, said Erkan’s appointment, coupled with Treasury and Finance Minister Mehmet Simsek’s pledges to restore credibility, was a clear signal of a return toward rules-based monetary policymaking to re-anchor inflation expectations.
“Our base case is for a supersized rates hike from 8.5% to 20% on 22 June — with a likely pre-meeting statement to prepare markets for the start of the hiking cycle — to reach levels that imply positive real rates by year-end,” he told Arab News.
Wolfango Piccoli, co-president of London-based Teneo Intelligence, thinks that “an outright and fast pivot toward a conventional policy set, especially in terms of monetary policy, remains unlikely.” He also noted that a shift towards orthodox economic policy requires the support of the banking regulator, which is now headed by a loyalist, suggesting a likely return to previous economic policies.