Erdoğan invites former Goldman Sachs banker to head Türkiye’s central bank

Recep Tayyip Erdoğan has appointed a former US banker as head of the country’s central bank in the latest sign that the Turkish president may be changing course towards unscrupulous policies. system caused a painful cost of living crisis and sent the lira to a record low against the dollar .

Hafize Gaye Erkan, who has held senior roles at Goldman Sachs as well as the failed US lender First Republic, will be the first woman to head Turkey’s central bank. She will take power from Şahap Kavcıoğlu, who has sharp reduction in interest rates under the orders of Erdoğan and will now become the head of the Banking Regulatory and Regulatory Authority.

The president’s decision to mine Erkan has just been made a few days after he chose Mehmet Şimşek, a former deputy prime minister known to global investors, serves as finance minister. He also appointed Cevdet Yilmaz, who is considered a supporter of orthodox economic policies, as vice-president.

The appointments have stoked cautious optimism among investors that Erdoğan, who is re-elected on May 28, will pivot to more conventional policy when Türkiye’s economy was under intense strain.

Erdoğan, a longtime opponent of high borrowing costs, prompted the central bank to cut its key interest rate from 19% two years ago to 8.5%, a move blamed for the inflation crisis. inflation and caused the lira to plunge against the dollar. The president is now the fifth central bank governor since 2019.

Line chart of one-week repo rate (%) shows Türkiye has cut borrowing costs sharply in recent years

Investors and economists have said Türkiye must raise interest rates significantly to slow price growth and attract foreign investors who have left the country in recent years.

Turkey’s dollar-denominated bonds have rallied since it became clear that Şimşek will be appointed finance minister, while it costs to protect from Turkey’s default has decreased.

Erkan, a risk management specialist, holds a PhD in financial engineering and operations research from Princeton University and led analysis of the financial institutions team at Goldman before spending nearly eight years as chief executive officer. senior executive at First Republic.

The 44-year-old Turkish-American had one choppy ends his term at First Republic, where she was appointed co-CEO in July 2021 before leaving the lender at the end of the year. First Republic was acquired by JPMorgan in a sell-off this year after its wealthy clients withdrew their deposits.

Erkan will face an economy that is in deep peril. Many economists have warned that Turkey’s war budget is dangerously draining after the central bank burned through about $25 billion in foreign currency reserves this year to finance an account deficit. past and try to prop up the lira.

Coins have down more than 10 percent this weekincluding Friday’s 0.6 percent drop, which analysts see as a first step away from measures introduced in recent years to protect the currency.

Erik Meyersson, head of emerging market strategy at Swedish bank SEB, warned that retaining former central banker Kavcıoğlu in a new role means Erdoğan’s economic policies “could be” come back at any time.”


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