Fatih Karahan, newly appointed Governor of the Central Bank of Turkey, on February 4, 2024 in Ankara, Turkey.
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Turkey’s newly appointed central bank governor, Fatih Karahan, was appointed to the job by presidential decree over the weekend following the sudden resignation of his predecessor, Hafizeh Gey Erkan, and his job has been drastically reduced. ing.
Mr. Callaghan, who previously served as deputy governor of the central bank, has a resume that includes years of work at prominent U.S. institutions and companies. He earned a master’s degree and a Ph.D. in economics from the University of Pennsylvania, spent nearly a decade as an economist at the Federal Reserve Bank of New York, worked as an adjunct instructor at Columbia University and New York University, and is a senior economist at Amazon.
The 42-year-old economist’s experience is expected to help him lead the agency as it grapples with the spectacular inflation and cost-of-living crisis that has hit Turkey’s 85 million people. The country’s currency, the lira, has fallen 38% against the dollar since the beginning of the year and has lost more than 80% of its value against the dollar over the past five years.
Turkey’s consumer price index was released on Monday, showing an increase of about 65% in January from a year earlier. The country’s central bank has raised interest rates eight times in a row since May 2023, to a cumulative total of 3,650 basis points, in a bid to curb soaring inflation. The latest rate hike on Jan. 25 raised Turkey’s key interest rate by 250 basis points to 45%, although leaders at the time suggested the rate hike cycle was coming to an end.
Investors and economists say the rate hike, while painful for the country, is necessary and that a continuation of monetary policy priorities will engender confidence in the new central bank chief.
In a statement posted on the Turkish central bank’s website on Sunday, Karahan highlighted “price stability” as his team’s main priority, “ensuring that inflation is eliminated” and that “inflation is in line with the target”. “We will continue to maintain the necessary monetary tightening until the situation declines to a level that will meet our expectations.”
“All eyes are now on new central bank governor Fatih Callaghan,” Liam Peach, senior emerging markets economist at London-based Capital Economics, said in a note on Monday. “As things stand, monetary policy continuity is likely to continue.”
Wolfango Piccoli, co-president of advisory firm Teneo, agrees.
“Like Mr. Elkann, Mr. Callahan is not a financial economist, but he is still seen as a reliable resource,” Mr. Piccoli said in the firm’s analysis.
“Unlike recent gubernatorial changes, Mr. Elkann’s resignation will not result in a dramatic change in policy stance,” he said, adding that the central bank would be “more hawkish on forward guidance to support Mr. Callaghan in his new role.” There is still a possibility that it will adopt a similar tone.”
unconventional policy
Piccoli said Turkey’s monetary policy remains ultimately at the mercy of Turkish President Recep Tayyip Erdogan, who has suppressed central bank independence and caused runaway inflation that at one point exceeded 85%. However, he pointed out that the central bank has been scaring investors for years by preventing it from raising interest rates.
The more traditional policy approach, which began under Hafize Erkan and Turkish Finance Minister Mehmet Simsek, who was also appointed last year, follows several years of unconventional policies. President Erdogan has previously criticized interest rates as the “root of all evil” even as consumer prices have skyrocketed and the lira has plummeted.
Turkish Central Bank Governor Hafise Gey Erkan answers questions during a press conference on the Inflation Report 2023-III in Ankara, Turkey, July 27, 2023.
Anadolu Agency | Anadolu Agency | Getty Images
“Regardless of Karahan’s stature and the support of Minister of Finance and Finance Mehmet Simsek, Mr. Erdoğan remains the final decision-maker,” Piccoli said.
“As long as the president continues to support the (gradual) transition to legitimacy he favored after the 2023 elections, the identity of the governor will be largely irrelevant as the TCMB will have weak (if any) institutional independence. ”
Callaghan “will have to operate within the confines of a central bank that is not independent and does not have appropriate experts in place,” Piccoli added. CNBC has reached out to Türkiye’s central bank for comment.
Investor confidence in Turkey has improved during the nearly eight-month tenure of Hafizeh Erkan, who took over as Turkey’s first female central bank governor in June 2023. She announced her resignation in a sudden announcement on Friday, stating that the decision was due to the following reasons: “Reputation assassination” campaigns and the need to protect families.
Elkann, like Callahan, also has a resume featuring America’s elite educational institutions. She earned a doctorate in financial engineering from Princeton University and earned degrees from Harvard and Stanford’s School of Business, after which she worked at Goldman, Sachs and First she worked at Republic Bank, the latter. Served as co-CEO. She also served on the board of Tiffany & Co., a professional service company and a Fortune 500 company, and was appointed to the board of McLennan.