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The flags of Türkiye fly in front of the Galata Tower in Istanbul

Photo: Lefteris Pitarakis/picture alliance/dpa

The Turkish central bank is once again getting a new boss. Deputy Governor Fatih Karahan replaces previous boss Hafize Gaye Erkan, who unexpectedly resigned on Friday after less than eight months. The former finance manager, who initiated a U-turn in monetary policy with several interest rate hikes, cited personal reasons for her resignation. Erkan explained that she had become the target of a campaign to damage her reputation and wanted to protect her family and her child, who was almost one and a half years old.

Finance Minister Mehmet Simsek and Turkish Vice President Cevdet Yilmaz emphasized in similar statements that the current economic policy would continue without interruption. President Recep Tayyip Erdoğan immediately promoted Karahan, one of Erkan's three deputies, to the top of the central bank. Like Erkan, the 42-year-old Karahan has worked in the USA for years. He holds an economics degree from the University of Pennsylvania and worked as an economist at the Federal Reserve Bank (Fed) of New York.

Erkan ended the ultra-loose monetary policy

Since Erkan took office in June 2023, the central bank had switched from an ultra-loose monetary policy to a sharp tightening course. She had increased the key interest rate in several steps to 45 percent from 8.5 percent at the time. Erdoğan, who has described himself as an “enemy of interest rates,” appointed Erkan himself. After completing her studies in the USA, she had a career on Wall Street and in the management ranks of US financial companies and was the first woman to head the Turkish central bank. This has now seen as many changes at the top within five years after Erdoğan dismissed Erkan's four predecessors.

Before Erkan, the central bank had wanted to stimulate the economy with cheap money at Erdoğan's behest. As a result, the local currency, the lira, had depreciated drastically, which in turn exacerbated the inflation problem. Turkey has to import many goods and raw materials from abroad, which have become increasingly expensive due to the weak lira. A few days ago, the central bank declared that the key interest rate should remain at the current level until a significant decline in inflation and inflation expectations is achieved.