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Erdogan names ex-Goldman Sachs MD to head central bank

REUTERS/Umit Bektas
Turkish President Tayyip Erdogan announces new cabinet during a press conference in Ankara on June 3, 2023
  • Hafize Gaye Erkan may tighten policy after rate-cutting drive
  • Erkan is fifth central bank chief in four years
  • Lira at record lows amid depleting forex reserves

President Tayyip Erdogan has appointed Hafize Gaye Erkan, a finance executive in the United States, to head Turkey’s central bank as it prepares to reverse course and tighten policy after years of rate cuts and a simmering cost-of-living crisis.

Erkan, former co-CEO at First Republic Bank and managing director at Goldman Sachs, takes the reins after Erdogan’s re-election on May 28 and just under a week after he signalled a pivot away from unorthodoxy with a new cabinet.

The fifth central bank chief in four years, she replaces Sahap Kavcioglu, who spearheaded Erdogan’s rate-cutting drive that set off a historic currency crash in 2021 and sent inflation to a 24-year peak above 85 percent last year.

The announcement of Erkan’s appointment in the Official Gazette was accompanied by a decision to appoint Kavcioglu as head of the country’s BDDK banking watchdog.

Erkan’s leanings are unclear given she has no formal monetary policy experience in her career spanning Wall Street and US corporate boardrooms. She has a Ph.D. from Princeton University in financial engineering.

She was at First Republic from 2014-2021, according to her LinkedIn profile. This year, it became the largest US bank to fail since 2008 after it was seized by regulators and sold to JPMorgan.

Turkey’s central bank has had its independence all but stamped out in recent years by Erdogan. A self-proclaimed “enemy” of interest rates, he pressed it to deliver stimulus and was quick to replace governors.

The policy rate was slashed to 8.5 percent from 19 percent in 2021, leaving real rates deeply negative and the lira largely managed by dozens of regulations covering credit and foreign exchange.

Yet after Erdogan survived his toughest political test in the May 28 runoff vote, he named Mehmet Simsek, a well-respected and orthodox former finance minister, as minister in charge of the economy.

Amid record low foreign reserves of -$5.7 billion, the lira has hit all-time lows this week, plunging 7.2 percent on Wednesday and traded at 23.5010 against the dollar after Erkan’s appointment.

Analysts said the return of Simsek and the appointment of Erkan set the stage for rate hikes, which could re-attract foreign investors after an exodus in recent years.

The apparent U-turn on the economy comes as many analysts anticipate turmoil given depleted foreign reserves, unchecked inflation and wide current account deficits.

The economy’s prospects depend on how much independence Erdogan grants Erkan and Simsek, analysts said. In the past, he has embraced orthodoxy, only to quickly double back.

The last central bank governor to raise rates, Naci Agbal, was fired in 2021 after less than five months on the job.

“It is unclear for how long Erdogan may tolerate a more pragmatic stance on the economic front, given the priority he assigns to the March 2024 local elections,” said Wolfango Piccoli of Teneo. The ruling AK Party aims to recapture big cities from opposition control in those elections.

Erkan is on Marsh McLennan’s board and was named CEO at Greystone, a real estate finance and investment firm, last year.

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.