ANKARA: The new governor of Turkey’s central bank, Hafize Gaye Erkan, has every reason to be wary of the Turkish president who has sacked several of his predecessors and ministers who dared to contradict him.

The Turkish head of state Recep Tayyip Erdogan has reacted particularly sensitively to the interest rate hike over the past two years, which he vehemently rejects.

At its first monetary policy meeting on Thursday, Erkan raised interest rates from 8.5% to 15%, abandoning unconventional economic measures promoted by the Turkish president for the first time in two years.

However, observers stress that this decision falls far short of satisfying markets, which would have preferred a significant increase rather than a step-by-step approach.

The Turkish lira fell 2.5% against the dollar on Thursday afternoon, signaling investor disappointment.

However, Ms Erkan promised in a press release possible further hikes “as much as necessary, in a timely manner and gradually, until a significant improvement in the inflation outlook is achieved”.

“It’s a sign that the new governor is trying to exercise caution to avoid a confrontation with President Erdogan,” said Hamish Kinnear, an analyst at risk consultancy Verisk Maplecroft.

However, after her appointment in early June, the pro-government Turkish press dubbed her “the fabulous Turk” and “the genius”.

As the first woman to take the helm of the institute, Ms. Erkan combined brilliant studies and responsibilities at major American banks, including Goldman Sachs.

His appointment as head of Turkey’s central bank is seen as a sign of a possible return to more conventional economic policies in Turkey.

But many observers doubt that the governor, who was appointed by presidential decree, can enjoy complete independence from the Turkish president.

Contrary to classical economic theories, the Turkish head of state believes that high interest rates favor inflation, which in Turkey in May was still almost 40% over a year, according to official figures – more than 100% according to independent economists.

President Erdogan has therefore forced the central bank to cut interest rates in recent years, fueling inflation and contributing to the fall of the Turkish lira, which has lost almost 80% of its value against the dollar in five years.

Limited scope in Turkey

The appointment of his predecessor Sahap Kavcioglu, who followed the Turkish president’s wishes to the letter, as head of the banking regulator may indicate that the central banker’s room for maneuver will be limited.

Returning to Turkey one day to “serve her country” was a dream for her, several Turkish daily newspapers report.

As part of her doctorate in industrial engineering at Bogaziçi University in Istanbul, she received a doctoral scholarship at the renowned American University of Princeton.

The only daughter of a mathematics teacher and an engineer father, she then complained during a discussion later reported by a Turkish columnist that she had not been able to find an internship in Turkey without a flask due to widespread favoritism.

Hafize Gaye Erkan

“Unfounded praise»
She came to Goldman Sachs with her thesis in the mid-2000s. She stayed there for nine years and then moved to First Republic Bank, where she finished second.

She was subsequently named one of the “rare women to run a major bank” in a 2018 ranking of 40 executives and business players under the age of 40 published by Crain’s magazine.

But the end of his First Republic career, in early 2022, comes just before the Bank of America crisis, the second largest bankruptcy in United States history.

“Some unfounded praise of them in the Turkish press suggests that they aim to hide their experience of First Republic’s bankruptcy,” economist Selva Demiralp said in an article published by BBC Turkçe.

With local elections looming in 2024, the “fabulous Turks” may also have trouble swallowing the bitter pill of possible successive rate hikes that could slow Turkey’s economic growth so touted by President Erdogan.