ISTANBUL (AP) — Turkey’s first woman to head its central bank, Hafize Ghaye Ercan, has stepped down just eight months after taking the job, marking the fifth governor to step down in five years.
He announced his resignation late on Friday after allegations of nepotism recently surfaced in local media – allegations that Elkann, a former Goldman Sachs executive, strongly denied.
President Recep Tayyip Erdogan has previously fired central bank governors who rejected his unorthodox beliefs that go against mainstream economic thinking – keeping interest rates low to fight inflation – but Erkan blames a “massive smear campaign”.
Her successor, Deputy Governor Fatih Karahan, has suggested Turkey will maintain high interest rates under the oversight of Finance Minister Mehmet Simsek.
The series of rate hikes since Erdogan was re-elected in May marks a shift away from the unconventional policies of his predecessor that economists say caused a currency crisis, drove up the cost of living and made it difficult for families to buy basic goods.
Here are key things to know about the central bank reforms and what they mean for Turkey’s battered economy.
Why a new central bank governor?
Ercan resigned after weeks of media reports alleging that his father had undue influence over the central bank’s Istanbul office.
While she enjoyed some support from President Erdogan, who has spoken out against “unjustified rumors” that are undermining Turkey’s economic development, critics continued to question her leadership.
In particular, they featured a magazine interview in which she said that she was unable to rent a house in Istanbul due to high rent prices, so the family ended up living with her parents.
Why is this major change important?
Previous changes in central bank leadership have seen Erdogan roll back efforts to curb inflation through higher interest rates.
Mr Simsek and Mr Ercan were appointed after parliamentary and presidential elections last May to tackle Turkey’s economic problems through raising borrowing costs. Interest rates rose to 45% at the end of last month from 8.5% in June, a move widely welcomed by foreign investors who had previously turned their backs on Turkey.
Despite these price hikes, inflation remains high: Figures released on Monday showed consumer prices rose to 64.86% in January compared to the same month a year earlier, up from 64.77% in December.
The appointment of Callahan, another member of Finance Minister Simsek’s team, on Saturday strongly suggests there will be no shift in economic policy this time.
Like Elkann and Simsek, the new central bank governor has extensive experience working in the U.S. He was brought on as deputy governor of the bank at the same time Simsek took over at the Treasury and Elkann was appointed head of the central bank.
Callahan, who is in his early 40s, began a 10-year career at the Federal Reserve Bank of New York in 2012 after earning a master’s and doctorate in economics from the University of Pennsylvania.
He was then appointed chief economist at Amazon while working as an adjunct lecturer at Columbia University and New York University.
What does the future hold for the Turkish economy?
Following Karahan’s appointment on Saturday, Simsek said those running Turkey’s economy were “committed to supporting the process of controlling inflation through the restoration of fiscal discipline.”
“The president has full support and confidence in our economic team and the program we are implementing,” he added.
Turkey faces local elections in March in which Erdogan will seek to retake several major cities won by the opposition in 2019, including Ankara and Istanbul.
A poor performance from the president’s party could weaken his resolve to stick to Simsek and his “rational” approach.
Liam Peach, senior emerging markets economist at Capital Economics, said the arguments for further rate hikes later this month were “compelling and underscore the central bank’s determination to fight inflation” while also boosting Callaghan’s credibility.
But Can Selcuk, managing partner at Istanbul Economic Research, said further rate hikes were unlikely even though Turkey’s economy was “not out of the woods yet.”
“It’s not the governor who is important, it’s Simsek. As long as he’s in that position, he will make sure that the current policy remains unchanged,” Selčukki said of Callahan’s appointment.
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