Turkish Central Bank Governor Hafize Gaye Erkan answers questions during a news conference for the Inflation Report 2023-III in Ankara, Turkey on July 27, 2023.
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Turkey’s central bank governor Hafize Gaye Erkan resigned on Friday, citing a need to protect her family amid a “reputation assassination”, and she was swiftly replaced by a deputy who is expected to carry on her tight policy stance.
President Tayyip Erdogan – who hired Erkan eight months ago to pivot away from years of inflation-fueling low interest rates to a more orthodox policy – named Deputy Governor Fatih Karahan to take the reins, the Official Gazette said early on Saturday, two hours after the surprise resignation.
The personnel changes at the helm of Turkey’s economy came as Erkan’s aggressive interest rate hikes had begun cooling inflation expectations after a years-long cost-of-living crisis for Turks.
The first woman to lead the central bank, Erkan was its fifth governor in as many years. Erdogan fired the last four, eroding the institution’s independence and sowing concerns about dysfunction.
But late on Friday, cabinet leaders quickly said that the economic programme will carry on after Erkan’s departure.
Karahan, a former Federal Reserve Bank of New York economist, was appointed deputy in July and is seen as a capable successor who played a big role in engineering the monetary tightening.
Erkan, a former U.S. bank executive, began raising rates when she was appointed in June, launching a 180-degree pivot away from years of low rates under Erdogan that had sent inflation soaring and foreign investors fleeing.
Since then the central bank had hiked its key rate to 45% from 8.5%. Last week, after another 250 basis-point rise, it said it had tightened enough to achieve disinflation, signalling a halt.
Erkan said that “our economic programme has started to bear fruit”, citing rising foreign reserves and expectations that inflation will begin cooling around mid-year “as proof of this success”.
“Despite all these positive developments, as is known to the public, a major reputation assassination campaign has recently been organised against me,” she added on social media platform X.
“In order to prevent my family and my innocent child, who is not even one and a half years old, from being further affected by this, I have asked our President to pardon me from my duty.”
Last month, opposition newspaper Sozcu published an article about a central bank employee who said she was wrongfully dismissed from the bank by Erkan’s father.
In response at the time, Erkan said that an “unfounded” news story targeting her, her family and the bank was “unacceptable” and vowed to exercise her legal rights against those responsible.
Erdogan later decried efforts to spread “rumours” meant to undermine economic progress, in an apparent endorsement of Erkan.
Confidence
Finance Minister Mehmet Simsek said Erkan’s resignation was her personal decision and the economic programme will carry on uninterrupted.
Just hours before Karahan’s appointment was announced, Simsek said the new governor would be “a well respected macroeconomist with an extraordinary depth of knowledge and expertise,” and was appointed in line with his recommendation.
Karahan has a doctorate in economics from the University of Pennsylvania and was a principal economist at Amazon in 2022. The Official Gazette notice naming him also said Erdogan “dismissed” Erkan.
Simsek said Erdogan continues to back the economic team and programme, a sentiment echoed in a separate statement by Turkish Vice President Cevdet Yilmaz.
Inflation neared 65% last month and is expected to begin dipping around June, spelling some relief for Turks after years in which rent and other basic needs became unaffordable for many.
Foreign investors, including world heavyweights Pimco and Vanguard, began buying Turkish assets late last year in a strong signal of confidence in Erkan and Simsek’s programme.
Erkan’s resignation “may have been due to personal reasons but it will make investors a little sceptical until they see proof that the policies they have been pursuing remain,” said Jeff Grills, head of emerging market debt at Aegon Asset Management, referring to nagging worries that Erdogan could again return to rate cuts.
But Serkan Gonencler, chief economist at financial firm Gedik Yatirim, said the assurances from cabinet leaders “relieve concerns about the continuity of the economic program”.
Since 2018, Erdogan had overseen a policy of slashing interest rates in the face of soaring inflation, setting off a series of currency crises and prompting authorities to tighten their grip on foreign exchange, debt and credit markets.
But after his re-election in May, Erdogan named a new cabinet and Erkan as central bank chief and backed the pivot to orthodoxy.