The central bank announced on Thursday that it would continue to tighten monetary policy gradually and boosted its inflation prediction for the end of 2023. On Friday, President Tayyip Erdogan named three deputy governors to the institution.
Erdogan appoints three deputy governors: The announcement names Osman Cevdet Akcay, Fatih Karahan, and Hatice Karahan as the new deputy governors of the central bank, replacing three predecessors.
According to his LinkedIn page, Fatih Karahan most recently served as a principal economist at Amazon. He previously held economist positions at the Federal Reserve Bank of New York for about a decade.
Hatice Karahan is a professor and the president’s main economic adviser. Akcay was a former employee of Turkiye’s lender Yapi Kredi.
Tim Ash, a strategist with BlueBay Asset Management, claimed that Erdogan made a “180 degree turn” by appointing the three in favour of more unconventional thinking. “Cevdet is an excellent thinker and economist.
Hatice is also quite good; she is a conventional, logical thinker. Previously employed by the New York Fed is Fatih Karahan. Excellent hiring,” Ash commented. On Friday morning, the lira’s value versus the dollar was unchanged from Thursday’s closing level at 26.9560. This year, it has lost 30% of its worth.
Rising inflation expectations
The appointments followed the central bank’s decision, made under the leadership of new Governor Hafize Gaye Erkan, to reverse course and tighten policy after years of rate reduction and a simmering cost-of-living problem.
Turkiye’s central bank announced on Thursday that it would keep tightening monetary policy and that it has drastically increased its end-of-2023 inflation prediction to 58%.
Inflation for the year was 38.2% in June. After winning re-election in May, Erdogan made Mehmet Simsek the finance minister and appointed Erkan as the governor of the central bank. Observers perceived this move as a shift towards economic conventional wisdom.
Furthermore, Erdogan holds the unconventional belief that high interest rates bring on inflation.
The central bank has increased its policy rate by 900 basis points to 17.5% since Erkan’s tenure, although the rate of tightening has lagged below market forecasts.
Additionally, In her first formal address to the media on Thursday, Erkan outlined a comprehensive monetary policy, and foreign investors applauded her admission of severe inflation pressures.
By year’s end, economists anticipate that the policy rate will increase further to 25% while real rates remain negative.
However, They caution that the central bank’s ability to tighten policy is constrained by Erdogan’s power. According to a statement released on Friday, Erdogan fired the previous deputy governors Emrah Sener, Taha Cakmak, and Mustafa Duman.