Erdogan appoints former Goldman Sachs banker to head the Central Bank of Turkey

Recep Tayyip Erdogan appointed a former US banker as head of the country’s central bank, the latest sign that the Turkish president may change course on his unorthodox policies that sparked a painful cost of living crisis and sent the lira to record lows against the dollar. .

Hafiza Cay Erkan, who has held senior positions at Goldman Sachs as well as the failed US regional lender First Republic, will be the first woman to head Turkey’s central bank. She will take over from hap Kavcıoğlu, who cut interest rates sharply at Erdogan’s request and will now become the head of the Banking Regulation and Supervision Agency.

The president’s decision to take advantage of Erkan came just days after he chose Mehmet Simsek, a former deputy prime minister who is popular with global investors, as finance minister. He also named Cevdet Yilmaz, who is seen as a supporter of traditional economic policies, as vice president.

The appointments sparked cautious optimism among investors that Erdogan, who was re-elected on May 28, will shift to a more traditional policy as Turkey’s economy is under severe strain.

Erdogan, a longtime opponent of rising borrowing costs, pushed the central bank to cut its key interest rate from 19 percent two years ago to 8.5 percent, a move he blamed for sparking the inflation crisis and sending the lira into overdrive. down against the dollar. The president is now the fifth governor of the central bank since 2019.

Line Chart Of The One-Week Repo Rate (%) Showing That Turkey Has Sharply Reduced Borrowing Costs In Recent Years

Investors and economists said Turkey should raise interest rates significantly to slow runaway price growth and attract foreign investors who have deserted the country in recent years.

Prices for Turkey’s dollar-denominated bonds have risen since it became clear that Şimşek would be appointed finance minister, while the cost of protection against a Turkish debt default has eased.

Erkan, a risk management expert, holds a Ph.D. in financial engineering and operations research from Princeton University and led group analytics for Goldman’s financial institutions before spending nearly eight years as a senior executive at First Republic.

The 44-year-old Turkish-American has made a choppy end to her tenure at First Republic, being named co-CEO in July 2021 before leaving the lender by the end of the year. First Republic was bought by JPMorgan in a flash sale this year after racing for deposits held by its wealthy clients.

Ercan will face the economy in increasing danger. Several economists have warned that Turkey’s war chest has been seriously depleted after the central bank spent some $25 billion in foreign exchange reserves this year to fund a large current account deficit and try to prop up the lira.

The currency has fallen more than 10 percent this week, including a 0.6 percent drop on Friday, in what analysts saw as an initial step away from measures put in place in recent years to defend the currency.

Erik Myerson, chief emerging markets strategist at Swedish bank SEB, warned that keeping former central banker Kavcioglu in a new position means Erdogan’s economic policies “could come back at any time.”

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