Recep Tayyip Erdoğan has appointed a former U.S. banker as head of the country’s central bank, the latest sign that Turkey’s president may be changing his unorthodox policies that have sparked caused a painful cost of living crisis and sent the lira to record lows against the dollar.
Hafize Gaye Erkan, who held senior positions at Goldman Sachs and at collapsed U.S. regional bank First Republic, will become the first woman to head Turkey’s central bank. She will take over from Şahap Kavcıoğlu, who slashed interest rates at Erdogan’s request.
The president’s decision to appoint Erkann as finance minister comes just days after he picked former deputy prime minister Mehmet Şimşek, who is popular with global investors. He also named Cevdet Yilmaz, considered a supporter of orthodox economic policies, as vice president.
The appointments have fueled cautious optimism among investors that Erdogan, who was re-elected on May 28, will pivot to more traditional policies as Turkey’s economy comes under intense pressure.
Erdogan, a lifelong opponent of high borrowing costs, has pushed the central bank to cut its key interest rate to 8.5 percent from 19 percent two years ago, a move blamed for fueling an inflation crisis and sending the lira plummeting against the dollar.
Investors and economists say Turkey must raise interest rates sharply to slow runaway price growth and attract foreign investors who have abandoned the country in recent years.
Turkey’s dollar-denominated bonds rose as Şimşek was set to be named finance minister, while the cost of preventing a Turkish debt default has fallen. But many investors are still waiting for policy clarity before making any decisions.
Erkan holds a Ph.D. in Financial Engineering and Operations Research from Princeton University and led analytics for the Financial Institutions Group at Goldman Sachs, before spending nearly eight years as a senior executive at First Republic.
The 44-year-old Turkish-American’s tenure at First Republic ended on a rocky note when she was named co-CEO in July 2021 before leaving the bank by the end of the year. First Republic was bought by JPMorgan this year at a discount after a run on deposits held by its wealthy clients.
Elkann will face a deepening economic crisis. Turkey’s central bank has burned through about $25 billion in foreign exchange reserves this year to fund a widening current account deficit, and many economists warn that Turkey’s war chest is running out and dangerous.
She also has to contend with the strained lira, which has fallen more than 60 percent over the past two years after Erdogan’s policy of rate cuts left rates in deeply negative territory when adjusted for inflation.