Recep Tayyip Erdoğan has appointed a former US banker as the country’s central bank chief in the latest sign that Turkey’s president may be changing course on his unorthodox policies that have ignited a painful cost of living crisis and sent the lira sinking to record lows against the dollar.

Hafize Gaye Erkan, who has held senior roles at Goldman Sachs as well as failed regional US lender First Republic, will be the first woman to head Turkey’s central bank. She will take the reins from Şahap Kavcıoğlu, who had sharply cut interest rates at Erdoğan’s behest.

The president’s decision to tap Erkan came just days after he picked Mehmet Şimşek, a former deputy prime minister popular with global investors, as finance minister. He also appointed Cevdet Yilmaz, who is seen as a supporter of orthodox economic policies, as vice-president.

The appointments have stoked cautious optimism among investors that Erdoğan, who was re-elected on May 28, will pivot to more conventional policy as Turkey’s economy suffers intense strain.

Erdoğan, a life-long opponent of high borrowing costs, has pushed the central bank to cut its main interest rate from 19 per cent two years ago to 8.5 per cent, a move that has been blamed for inflaming an inflation crisis and sending the lira plummeting against the dollar.

Line chart of one-week repo rate (%) showing Turkey has sharply cut borrowing costs in recent years

Investors and economists have said Turkey must raise rates substantially to slow runaway price growth and woo foreign investors who have deserted the country in recent years.

Turkey’s dollar-denominated bonds have risen in price since it became clear Şimşek would be appointed finance minister, while the cost to protect against a Turkish debt default has eased. But many investors are still waiting for clarity on policy before making any decisions.

Erkan holds a PhD in financial engineering and operations research from Princeton University and led financial institution group analytics at Goldman before spending nearly eight years as a senior executive at First Republic.

The 44-year-old Turkish-American had a choppy end to her tenure at First Republic, where she was appointed co-chief executive in July 2021 before exiting the lender by year-end. First Republic was bought by JPMorgan in a fire sale this year after a run on deposits held by its wealthy clientele.

Erkan will be confronted with an economy in deepening peril. The central bank has burnt through about $25bn in foreign currency reserves this year to finance a yawning current account deficit, with many economists warning that Turkey’s war chest is dangerously depleted.

She will also need to contend with a lira that is under heavy pressure, having fallen more than 60 per cent in the past two years after Erdoğan’s rate cut cuts left interest rates in deeply negative territory after accounting for inflation.

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