Former Wall Street exec named head of Turkey central bank

ISTANBUL, June 9, 2023 — Turkish President Recep Tayyip Erdogan appointed former Wall Street executive Hafize Gaye Erkan as central bank governor on Friday, signalling a possible shift from his unconventional policies against soaring inflation.

Erkan — a former chief executive of US real estate finance firm Greystone, co-CEO of First Republic Bank and managing director at Goldman Sachs — will be the first woman to head the central bank. 

She takes over from Sahap Kavcioglu, who lowered rates even though central banks worldwide have done the opposite to fight inflation. Her appointment was published in the official gazette on Friday.

Under Kavcioglu's watch, the bank's policy rate was decreased to 8.5 per cent. It had been at 19 per cent in 2021.

The central bank "replaces its puppet banker", Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in a note. 

She suggested that the new governor would likely return the bank toward a more conventional monetary policy that would require rate hikes.

The analyst also expects diminishing foreign exchange market interventions "which will first lead to a further lira depreciation to catch up a year-and-a-half coma — an expensive coma".

The bank is due to make a rate decision on June 22.

Erdogan, who was re-elected to a third term in office last month, already signalled a shift on Saturday when he unveiled a new cabinet with Mehmet Simsek, a former Merrill Lynch economist, as finance minister.

Simsek — who worked as finance minister and deputy prime minister in the past ruling AKP governments — is known to oppose Erdogan's unconventional policies of lowering interest rates to fight inflation.

Turkey's inflation rate dropped below 40 per cent in May for the first time in 16 months. Independent economists believe it is much higher, above 100 per cent.

Simsek welcomed the appointment as an "outstanding choice" while Turkish media have for days talked of Erkan as the "brilliant Turk" or "genius". 

"Her strong academic credentials and extensive experience in international financial markets mean that she is well positioned to guide Turkey through challenging economic times," Simsek tweeted. 

'Purged' central bank economists 

Analysts say investors are less interested in how talented the new economic team is than in their ability to resist pressure from Erdogan, who once called high rates "the mother and father of all evil".

"Simsek & Erkan will be judged on monetary policy moves, inflation and lira," emerging markets economist Timothy Ash said on Twitter. 

The Turkish currency was down around 1 per cent against the dollar on Friday, trading over 23 lira per dollar since Wednesday. 

One of Erkan's main challenges this year will be to repair the working atmosphere at the central bank, according to Erik Meyersson, chief emerging markets strategist.

"Too many bright economists and bureaucrats were purged, reassigned, demoted, ostracised, and there's a talent reserve that she should look to tap into. But would they want to return?" he tweeted. 

Erdogan in the past sacked central bank governors after disagreements over interest rate policy, in a move that unsettled investors. 

After taking office, Simsek said Turkey had "no choice but to return to rational ground" — a sign of turning away from the low-rate policy.

Following the lira's latest plunge, he stated his commitment to rules-based policymaking.

"While there are no short cuts or quick fixes, rest assured that our experience, knowledge & dedication will help us overcome potential impediments ahead," he said on Twitter. 

"Our immediate priority is to strengthen our team and design a credible programme."

US career 

Erkan was born in Turkey and graduated from Istanbul's top Bogazici University. She earned a PhD scholarship to Princeton.

She joined Goldman Sachs in 2005 as an associate and was named managing director in 2011.

She later worked at First Republic Bank in 2014 where she earned the titles of senior vice president, chief investment officer and co-chief risk officer.

She was seen as the heir apparent to the bank's founder and longtime CEO, Jim Herbert, but abruptly resigned in December 2021.

"It was time for a change and for a new challenge," Erkan told Bloomberg Television last year.

The bank was embroiled in the US banking crisis in March this year.

US financial authorities seized First Republic in May and sold it to JPMorgan Chase, hoping to bring an end to turmoil that brought down three other regional banks.

Erkan was appointed chief executive of Greystone in June 2022, but she resigned in December. 

The firm said at the time that her departure was "amicable" and "related to her decision to focus on new opportunities in the financial sector".