(Bloomberg) — Turkey’s central bank Governor Hafize Gaye Erkan abruptly resigned late Friday night, and President Recep Tayyip Erdogan quickly appointed Deputy Governor Fatih Karahan to replace her, signaling a continuation of the transition to more investor-friendly, orthodox economic policies that Erkan helped to spearhead.
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Karahan has been a member of the central bank’s rate-setting Monetary Policy Committee since July, and had previously worked at the New York Fed and as a principal economist at Amazon.com, according to his biography on the central bank website. Prior to the announcement, Bloomberg reported that he was being considered for the central bank’s top job. Erdogan’s decision was published in the Official Gazette at midnight.
In a post on her personal X account earlier on Friday, Erkan said she’d asked to be relieved from her duties, just eight months after being appointed as part of a new economic team charged with leading a dramatic pivot in economic policy. She said she was facing an apparent smear campaign against her and that she was resigning to protect her family including an infant child.
A scandal had erupted in local media after allegations that Erkan’s father was intimately involved in the central bank’s affairs, despite having no official role at the bank. Erkan had denied the allegations.
Turkish officials rushed to emphasized that her resignation was for personal reasons and didn’t imply any change in the direction of economic policy, which was overhauled after she and Treasury and Finance Minister Mehmet Simsek were appointed in June.
The Finance Ministry said in a statement that Erkan’s decision was “entirely personal and at her own discretion,” and added that the president, Erdogan, “has full confidence and support in our economy team and our program.”
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The Turkish lira weakened after Erkan announced that she was stepping down, falling 0.5% to 30.4887 per dollar as of midnight in Istanbul, a record low closing level. The currency has depreciated by about 23% since Erkan and Simsek were appointed by Erdogan to lead the about-face in Turkey’s economic policies, which included raising interest rates aggressively and letting the currency trade more freely in an effort to attract foreign investment.
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Under Erkan, the central bank embarked on one of its longest-ever tightening cycles, hiking interest rates in succession to 45% at last month’s meeting from 8.5% when she was appointed, and abandoning an ultra-low interest-rates policy that Erdogan had advocated for years. Investors cheered the shift, with Deutsche Bank AG saying in November that Turkey’s local-currency bonds would be one of the trades of the year in emerging markets in 2024.
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Investors will now be looking for clues as to whether those policies will be sustained. For some, the fact that Simsek remains in place is a source of comfort. The minister had said the new governor would be appointed with his recommendation.
“I doubt the changes will have much impact on the course of monetary policy,” said Nick Stadtmiller at Medley Global Advisors, before Karahan’s appointment was official. “The question was never whether the sitting governor knew the right thing to do; it was whether the palace would allow them to do it,” he said, referring to Erdogan’s office.
Erkan thanked Erdogan and Simsek in her resignation post. She was Turkey’s first female central bank governor. Her background includes stints at Goldman Sachs Group Inc. and First Republic Bank in the US.
Karahan, the new governor, is a graduate of Istanbul’s Bogazici University who has previously worked at both the New York Fed and Amazon.com as an economist, according to his biography on the central bank’s website. He’s also taught at Columbia University and New York University, and received his doctorate in economics from the University of Pennsylvania in 2012, it says.
–With assistance from Patrick Sykes, Firat Kozok and Maria Elena Vizcaino.
(Updates with details throughoug, lira closing price.)
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