Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Turkey’s central bank governor Hafize Gaye Erkan, who oversaw a campaign of substantial interest rate increases, has stepped down shortly into her term, attributing her resignation to what she described as a sustained attack on her character in the local media. Erkan, who was appointed in June as the bank’s first female governor, stated that her sudden departure was due to personal reasons. She was Turkish President Recep Tayyip Erdoğan’s fifth central bank chief in five years. “A major character assassination campaign has been organized against me recently,” Erkan said, explaining that she had resigned “to prevent my family and, moreover, my innocent child . . . from being further affected by this process”. The former Goldman Sachs banker has been a key figure in a comprehensive economic policy transformation that commenced after Erdoğan’s re-election in May and has been widely commended by foreign investors who had largely distanced themselves from Turkey’s markets over the last decade. The central bank under her guidance has raised interest rates from 8.5 per cent in June to 45 per cent in an effort to combat a long-standing inflation crisis, reversing a longstanding policy of maintaining borrowing costs at extremely low levels.Erdoğan, who once referred to high interest rates as the “mother and father of all evil”, has seemed to support the rate increases. However, investors have been deeply concerned that Erdoğan might change direction abruptly. Turkey’s authoritative leader has previously dismissed central bank governors for increasing interest rates, including most recently Naci Ağbal three years ago.Finance minister Mehmet Şimşek, a former Merrill Lynch bond strategist who has spearheaded the economic revival efforts, stated on Friday evening that the program “continues without interruption and with determination”. He added: “Our president has full support and confidence in our economic team and the program we are implementing.” A senior economic official mentioned that a decision on appointing a new governor was likely to be made soon, and it was anticipated that Şimşek, highly regarded among foreign investors, would play a leading role in the decision-making process. Erkan has faced significant criticism in some newspapers in recent weeks regarding allegations that her father was given an unofficial role at the central bank. She strongly rejected the accusations, labeling them “unfounded” and “completely unacceptable”. Erdoğan appeared to express his support for Erkan last week, stating that unnamed perpetrators were “conducting campaigns to disrupt the climate of confidence and stability that we have achieved with great difficulty in the economy with unreasonable rumors”.Deputy central bank governors Osman Cevdet Akçay, who holds a PhD in economics from City University of New York, and Fatih Karahan, who earned an economics PhD from the University of Pennsylvania, are seen as front-runners to replace Erkan, according to local bankers. Emre Peker, Europe director at political risk consultancy Eurasia Group, said he did “not expect any changes [in policy] through the local elections”, which are set to take place in late March.“It appears that the next central bank governor has already been queued up and I anticipate that to be a credible name who will work well with Şimşek and enjoy Erdoğan’s support.”
