Feb 6, 2024 - Economy

Turkey's central bank chief resigns, citing a "character assassination" campaign

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

Turkey just lost another central bank chief.

Why it matters: The resignation of Hafize Gaye Erkan is the latest twist in the long soap opera surrounding Turkey's deteriorating financial position.

Zoom in: Erkan, the first woman ever to run the central bank, was appointed last June, with a mandate to bring the central bank back toward orthodox economic and financial principles — after years of political meddling and unorthodox policy under Turkish President Recep Tayyip Erdoğan.

Catch up fast: Under Turkey's strongman leader — who has been in power since 2003 — the central bank had repeatedly cut interest rates, even as inflation soared to 85% in 2022.

  • The standard economic approach to reining in inflation would call for higher, not lower interest rates.

The intrigue: The appointment of Erkan as the head of the central bank — after Erdoğan's re-election in May 2023 — marked a sharp swing back toward orthodox economics at the central bank.

  • During her tenure of less than a year, the central bank raised interest rates by 36.5 percentage points to their current level of 45%.
  • In announcing her departure, she cited a "character assassination" campaign against her in the wake of a national newspaper's reports last month that her family exerted undue influence at the central bank.

Yes, but: Officials within the government say that the change in the central bank's leadership is a personal matter and doesn't mean the government is altering its approach toward running a more orthodox monetary policy.

  • They have already named Fatih Karahan, a former economist at the Federal Reserve Bank of New York, to the top position, which seemed to ease the concern of markets.
  • Turkey's currency, the lira, strengthened slightly on Monday.

The bottom line: Still, Turkey's shambolic approach to financial management has already cost the country dearly.

  • The lira has lost nearly 95% of its value against the U.S. dollar over the last 16 years and almost 56% in the last two years alone.
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