Turkey’s new central bank chief advocates comprehensive policy in analysis.
Turkey's new central bank chief advocates comprehensive policy in analysis.
Turkey’s New Central Bank Chief Pledges Holistic Approach to Tackle Inflation
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Turkey’s new central bank chief, Hafize Gaye Erkan, recently addressed the media for the first time, presenting her comprehensive monetary policy. Her acknowledgement of the severe inflation pressures was positively received by foreign investors. During her debut news conference, Erkan outlined her philosophy and emphasized the holistic approach she intends to adopt in addressing the country’s economic challenges.
In addition to interest rate hikes, Erkan plans to leverage a range of macroprudential policy tools to combat inflationary pressures. This includes potentially implementing measures such as curbing loan growth in key sectors or credit card spending. Adopting a gradual and steady approach, Erkan seeks to continue the monetary tightening process that began with smaller-than-expected interest rate hikes in June and July.
However, what caught most attention during the conference was Erkan’s repeated use of the word “holistic.” According to Kaan Nazli, a portfolio manager at asset manager Neuberger Berman, this became the buzzword associated with Erkan’s speech. Nazli highlighted Erkan’s focus on domestic loan growth as a lever to tighten policy beyond the typical interest rate adjustments.
Under Erkan’s leadership, the central bank has begun simplifying the complex set of macroprudential measures implemented by her predecessor. These measures are aimed at ensuring the stability of the financial system. Additionally, Erkan has supported the rate hikes with qualitative and selective credit tightening, effectively strengthening the overall monetary policy.
Erkan forms the top economic team in Turkey, alongside respected veteran policymaker Mehmet Simsek, who heads the country’s Finance Ministry. Both are expected to address the economic strains that have contributed to the weakening lira, as well as double-digit inflation and significant foreign exchange reserve losses.
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Analysts have praised Erkan’s performance during the news conference, despite skepticism about her policies. Unlike some of her predecessors, Erkan chose to personally answer all questions, switching seamlessly between Turkish and English. This demonstrates her determination to be the face of monetary policy making in Turkey.
During the conference, Erkan skillfully avoided politically charged questions regarding the influence of President Erdogan’s government on monetary policy making. This sensitive issue remains a concern for many citizens who are grappling with the high cost of living. Emre Akcakmak at East Capital described Erkan as a competent policymaker with realistic expectations. He commended her for refraining from dwelling on previous management issues and instead focused on the way forward.
While Erkan’s holistic approach may sound appealing, some analysts view it as a euphemism for unorthodox measures. Nonetheless, there is a consensus among investors that Erkan faces a challenging task in effecting a swift pivot towards economic orthodoxy after years of President Erdogan advocating for lower interest rates as a solution to high inflation. As the new governor, Erkan will need to demonstrate that her strategy can deliver concrete results. Investors anticipate more decisive action if credit and monetary tightening fail to yield the desired outcomes.
Despite the difficulties Erkan may encounter in implementing her policies, her confident performance during the news conference impressed industry experts. Her proactive approach and competent handling of questions showcased her capabilities as a central bank governor. With caution and a realistic outlook, Erkan aims to navigate the complex economic landscape and bring stability to Turkey’s economy.
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