ISTANBUL (AP) — Turkey’s first female central bank governor, Hafise Gae Erkan, has stepped down after just eight months in office, making her the fifth governor to step down in five years.
Elkann announced his resignation late Friday after allegations of nepotism recently surfaced in local media and were strongly rejected by Elkann, a former senior Goldman Sachs executive.
President Recep Tayyip Erdogan has previously fired central bank governors who rejected his unconventional belief in keeping interest rates low to fight inflation, which goes against mainstream economic thinking, but Erkan said “massive publicity and He blamed the incident on a “defamation campaign.”
Her successor, Deputy Governor Fatih Karahan, has indicated that Turkey will maintain high interest rates under the supervision of Finance Minister Mehmet Simsek.
The series of interest rate hikes since Erdogan was re-elected in May marks a shift from his unconventional policies that economists say have caused a currency crisis, driven up the cost of living and left households struggling to buy basics.
Here are the important things to know about the central bank shakeup and what it means for Turkey’s economy.
Why does Turkey have a new central bank leader?
Erkan resigned after weeks of media reports that his father had undue influence over the central bank’s Istanbul office.
She received some support from President Erdogan, who has spoken out against “unjustified rumors” that are undermining Turkey’s economic development, but critics continue to question her leadership.
In particular, she featured an interview with a magazine in which she said that her family moved with her parents because living in Istanbul was too expensive and they could not afford to rent a house.
Why is shakeup important?
Previous changes in central bank leadership have led to Erdogan opposing efforts to curb inflation through interest rate hikes.
Simsek and Erkan were appointed to address the country’s economic crisis through rising borrowing costs following last May’s parliamentary and presidential elections. Interest rates rose from 8.5% in June to 45% late last month, a move widely welcomed by foreign investors who had previously turned their backs on Turkey.
Despite these rate hikes, inflation remains high, with consumer prices rising to an astonishing 64.86% year-on-year in January, up from 64.77% in December, according to figures released on Monday. Rose.
Saturday’s appointment of Callahan, another member of Simsek’s team, strongly suggests there will be no shift in economic policy this time.
Who is Fatih Karahan?
Like Mr. Erkan and Mr. Simsek, the new bank president has extensive experience working in the United States, and was brought in as deputy governor of the bank at the same time as Mr. Simsek took over the Treasury Department and Mr. Erkan was appointed to head the central bank. .
Mr. Callaghan, 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 degree and a 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 are “committed to supporting the deflation process through the restoration of fiscal discipline.”
“The President has full support and confidence in the economic team and the programs we are implementing,” he added.
Turkey is due for local elections in March, and President Recep Tayyip Erdogan will aim to retake several major cities won by the opposition in 2019, including Ankara and Istanbul.
A poor performance among the president’s party could undermine his resolve to stick with Simsek and his “rational” approach.
Liam Pietsch, senior emerging markets economist at Capital Economics, said the arguments in favor of another rate hike later this month are “persuasive and would underline the central bank’s commitment to fighting inflation,” as well as Mr. Callaghan’s. He said it would improve reliability.
However, Can Serki, managing partner at Istanbul Economic Research, said further rate hikes were unlikely, even though Turkey’s economy was “not out of crisis in the near future.”
“It’s not the governor that matters, it’s Simsek. As long as he remains in office, he will ensure that current policy remains unchanged,” Selcuki said, referring to Callahan’s appointment.
