President Recep Tayyip Erdoğan on Friday named a former senior U.S.-based bank executive as the country's new central bank chief, in what analysts say marks another signal that an economic policy overhaul could be in the pipeline of the newly elected government.
Erdoğan named Hafize Gaye Erkan, a former co-CEO at First Republic Bank and managing director at Goldman Sachs, as governor, according to an announcement in the Official Gazette. The Princeton-educated Erkan, 41, is the Turkish central bank’s first woman governor.
The appointment comes as Erdoğan reshuffled his economic team after winning reelection on May 28 that extends his rule into the third decade. In one of the most prominent changes, he named Mehmet Şimşek, who is highly regarded by financial markets, as treasury and finance minister.
Analysts have suggested that the appointment of Şimşek could signal the government's departure from economic policies centered around low-interest rates to fight stubborn inflation.
The government has urged monetary stimulus over the last several years, aiming to achieve price stability by slashing borrowing costs, boosting exports and flipping chronic current account deficits to surpluses.
The fifth central bank chief in four years, Erkan replaces Şahap Kavcıoğlu, who spearheaded the easing drive that saw the monetary authority slashing its benchmark policy rate to 8.5% from 19% in 2021.
The cuts came as Türkiye’s inflation soared to a 24-year peak above 85% in October. But it has moderated significantly since the beginning of the year and lastly eased to an annual 39.6% in May, according to official data.
Erkan's appointment was accompanied by a decision to appoint Kavcıoğlu as head of the Banking Regulation and Supervision Agency (BDDK).
Erkan's leanings are unclear given she has no formal monetary policy experience in her career spanning Wall Street and U.S. corporate boardrooms.
Şimşek met Erkan in the capital Ankara earlier this week ahead of her appointment.
Expectations
Analysts say the return of Şimşek and the appointment of Erkan could set the stage for rate hikes, which could lure foreign investors. They say rates could be hiked to between 20% and 25%. The bank is due to make a rate decision on June 22.
Şimşek, 56, won the markets' confidence during terms as finance minister and deputy prime minister between 2009 and 2018. In his first remarks after the appointment, he said the country has no choice but to return to "rational ground" in terms of economic policies.
Şimşek pledged to increase predictability and accelerate the structural transformation.
He said fiscal policies and structural reforms would support Türkiye's central bank to help lower inflation.
Ipek Özkardeşkaya, a senior analyst at Swissquote Bank, suggested that the new governor would likely return the bank toward a more conventional monetary policy that would require rate hikes.
Authorities had implemented multiple regulations and measures to keep dollarization at bay and stabilize the Turkish lira. The lira has hit all-time lows this week and traded at 23.5 against the dollar on Friday after Erkan's appointment.
Following the fall in the lira, Şimşek stated his commitment to rules-based policymaking.
"While there are no shortcuts 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 program."
Şimşek is, meanwhile, scheduled to convene a meeting next week with top banking executives.
According to information from bankers close to the matter, the meeting is expected to be on Thursday, between Şimşek and the member banks of the Banks Association of Türkiye (TBB).
Sources stated that a general evaluation of the banking sector and current economic challenges are expected to be discussed.
U.S. career
Erkan was born in Türkiye and graduated from Istanbul's top Boğaziçi University. She has a Ph.D. from Princeton University in financial engineering.
She joined Goldman Sachs in 2005 as an associate and was named managing director in 2011.
She was at First Republic from 2014 to 2021 in roles that included president, board member and chief investment 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.
This year, the San Francisco-based lender became the largest U.S. bank to fail since 2008 after it was seized by regulators and sold to JPMorgan.
Erkan is on the board of Marsh McLennan, a Fortune 500 firm, and was named CEO at Greystone, a real estate finance and investment firm, in June last year. But she resigned in December.
Greystone said at the time that her departure was "amicable" and "related to her decision to focus on new opportunities in the financial sector."
During her career in New York City, she gained a reputation as "tough, smart, and effective," said Kathryn Wylde, CEO of the Partnership for New York City nonprofit, where Erkan once served as a director.
"She is certainly not someone who can be pushed around, but she also can disagree without being disagreeable," Wylde said.