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Turkish lira: Many tasks await the new head of the central bank

Photo: Can Merey/ dpa

Her job will be a major challenge: economic crisis, high inflation and a weak national currency – these are the problems Hafize Gaye Erkan will have to deal with in the future.

Turkish President Recep Tayyip Erdoğan has appointed the financial manager from the United States as head of Turkey's central bank. Erkan's nomination was published in the Official Gazette on Friday.

She takes office less than a week after the president had signaled a departure from the hitherto unconventional fiscal policy with a new cabinet.

After years of interest rate cuts and a prolonged economic crisis, Erkan has to change course and restructure fiscal policy. As the fifth female central bank governor in four years, she replaces Sahap Kavcioglu. He spearheaded Erdogan's interest-rate cutting policy and has now been appointed head of the state banking regulator BDDK.

According to her profile on LinkedIn, Erkan worked for First Republic Bank for almost eight years until December 2021, including as co-CEO.

The financial institution had to be forcibly rescued a few weeks ago. The major bank JP Morgan Chase has taken over the bankrupt bank. Erkan also states professional experience as a Managing Director at Goldman Sachs.

"Ms. Erkan is a proven leader in financial services with extensive experience in banking, investing, risk management, technology and digital innovation," she said on her profile page.

Erkan's strategy as head of the central bank is difficult to predict because she has no formal monetary policy experience in her career on Wall Street and in the boardrooms of American companies. She holds a Ph.D. in financial engineering from Princeton University.

Until now, Turkey had pursued an unusual economic course that did not meet general standards. For example, despite extremely high inflation, the central bank had lowered interest rates instead of raising them in the fight against inflation.

Behind it is Erdogan, who describes himself as an "enemy of interest rates" and wants to boost the economy with cheap money.

As a result, the national currency, the lira, depreciated drastically, which in turn exacerbates the inflation problem. Turkey has to import a lot of goods and raw materials, which are becoming more expensive due to the weak lira. Experts have warned that if the current policy continues, the economy is heading for turbulence as its foreign exchange reserves are depleted.

Erdogan, who has been in power for 20 years, was recently sworn in for another term. The 69-year-old, who had lagged behind in the polls, had won 52.2 percent of the vote in the run-off election. His five-year term in office will allow Erdogan to continue his increasingly authoritarian policies. This has polarized the country, but strengthened Turkey's position as a regional military power.