Newly appointed Turkish Central Bank Governor Fatih Karahan is seen in Ankara, Turkey, February 4, 2024.
Emin Sansar | Anadolu | Getty Images
Turkey’s newly appointed central bank governor Fatih Karahan has a lot of work ahead of him as he was appointed to the post by presidential decree over the weekend after his predecessor Hafize Gaye Erkan suddenly resigned.
Karahan was formerly deputy governor of the central bank. His resume lists years spent in major American institutions and companies. He received both a master’s degree and a doctorate in economics from the University of Pennsylvania, spent nearly a decade as an economist at the Federal Reserve Bank of New York, and served as a part-time faculty member at Columbia University and New York University a senior economist for Amazon.
It is hoped the 42-year-old economist’s experience will serve him well as he leads the institution tasked with tackling the staggering inflation and cost of living crisis affecting Turkey’s 85 million residents. The local currency, the lira, has fallen 38% against the dollar since the start of the year and has lost more than 80% of its value against the greenback over the past five years.
Turkey’s consumer price index was released on Monday, showing a year-on-year increase of about 65% for the month of January. The country’s central bank has made eight consecutive interest rate hikes since May 2023 – by a total of 3,650 basis points – to curb rising inflation. The most recent rate hike on Jan. 25 raised Turkey’s key interest rate by 250 basis points to 45%, although leaders signaled at the time that the rate-hiking cycle was over.
Although painful for the country, investors and economists say the rate hikes were necessary and that the continuity of monetary policy priorities will inspire confidence in the new central bank chief.
In his statement posted on the Turkish central bank’s website on Sunday, Karahan stressed that “price stability” was his team’s main priority and promised to “ensure the reduction in inflation” and “maintain the necessary restrictive monetary policy until inflation reaches a level.” Level falls that corresponds to our goal.”
“All eyes are now on new central bank governor Fatih Karahan,” Liam Peach, senior emerging markets economist at Capital Economics in London, wrote in a note on Monday. “From today’s perspective, continuity in monetary policy is likely to continue.”
Wolfgang Piccoli, co-president of consulting firm Teneo, agreed.
“Like Erkan, Karahan is not a monetary economist, but is still considered a credible choice,” Piccoli wrote in an analysis for the firm.
“Unlike recent governorship changes, Erkan’s departure will not result in a dramatic change in policy stance,” he said, adding that the central bank could still “take a more hawkish tone on forward-looking leadership to accommodate Karahan in his new position.” role to support.”
Unorthodox politics
Piccoli pointed out that Turkey’s monetary policy is ultimately still at the mercy of Turkish President Recep Tayyip Erdogan, who has spooked investors for years by suppressing the central bank’s independence and preventing it from raising interest rates despite inflation at times exceeded 85%.
The more conventional political approach that began under Hafize Erkan and Turkish Finance Minister Mehmet Simsek, also appointed last year, was followed by several years of unorthodox politics. Erdogan has previously called interest rates the “mother of all evil,” even as consumer prices soared and the lira plunged.
Turkish Central Bank Governor Hafize Gaye Erkan answers questions during a press conference on Inflation Report 2023-III on July 27, 2023 in Ankara, Turkey.
Anadolu Agency | Anadolu Agency | Getty Images
“Regardless of Karahan’s standing and the support of Finance and Finance Minister Mehmet Simsek, Erdogan remains the ultimate decision maker,” Piccoli said.
“As long as the president continues to support the (gradual) move toward orthodoxy that he advocated after the 2023 elections, the governor’s identity is almost irrelevant since the TCMB’s institutional independence is weak (if any).”
Karahan “will continue to have to operate within the confines of a central bank that is neither independent nor sufficiently staffed,” Piccoli added. CNBC has reached out to Turkey’s central bank for comment.
Investor confidence in Turkey improved during the roughly eight-month term of Hafize Erkan, who became Turkey’s first female central bank governor in June 2023. She announced her resignation in a surprise announcement on Friday, saying the decision was due to a “reputation assassination” campaign and the need to protect her family.
Erkan, like Karahan, has a resume that showcases elite American institutions; She has a doctorate in financial engineering from Princeton and degrees from Harvard and Stanford business schools. She later worked at Goldman Sachs and First Republic Bank, where she served as co-CEO. She also served on the board of Tiffany & Co. and was named a director of Marsh McLennan, a professional services firm and Fortune 500 company.
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2024-02-05 15:17:27
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