Turkey's Pro-market Bank Chief Resigns After Scandal

Turkey's central bank chief Hafize Gaye Erkan said Friday she was resigning after less than a year in office over a media scandal involving her family.

The respected former Wall Street executive's decision threatens to unsettle Turkey's nascent recovery from an economic crisis that saw the annual inflation rate reach 85 percent in 2022.

Erkan won major plaudits from Western investors for spearheading a rapid series of interest rate hikes that helped stabilise the slumping lira and tame Turkey's dire cost of living crisis.

Turkish President Recep Tayyip Erdogan -- a lifelong opponent of high interest rates -- dropped his support for unconventional economics and repeatedly praised Erkan for her work.

But the 44-year-old has came under withering attack on social media and in some opposition publications for allegedly allowing her father to make unauthorised personnel decisions at the bank.

Erkan has reportedly also angered Erdogan by telling one major newspaper that she had to move in with her parents because inflation had made renting in Istanbul unaffordable.

The attacks on Turkey's first woman central bank governor alarmed investors and created uncertainty about Erdogan's long-term commitment to his team.

"A major reputation assassination campaign has recently been organised against me," Erkan said in a social media statement.

"In order to prevent my family and my innocent child, who is not even one-and-a-half-years-old, from being further affected by this process, I have requested from our president to be pardoned from my duty, which I have been carrying out with honour since the first day."

Erdogan appointed Erkan just weeks after winning a tough May re-election in which his main opponent focused on Turkey's economic ills.

She joined a team led by Finance Minister Mehmet Simsek and other market-friendly technocrats that Western analysts saw as Turkey's best bet at pulling itself back from the brink of economic doom.

Their reforms have helped Turkey start winning back foreign investments and save the country from a potential banking crisis.

Erkan resigned just a week after completing a historic series of interest rate hikes that have pushed the baseline rate from 8.5 percent to 45 percent.

The bank said last week that it intends to keep rates high for the immediate future to make sure inflation is brought under control.

Erkan's resignation puts the immediate focus on whether Erdogan intends to keep his pro-market team in place.

Simsek called Erkan's decision "completely personal" and in no way reflective of Turkey's future economic course.

"Our economic programme, carried out under the leadership of our President Recep Tayyip Erdogan, continues decisively and without interruption," he said in a statement.

"We will continue to take firm steps towards our price stability target," Simsek said.

Some analysts said that Erkan's resignation could actually help Simsek and his team pursue their programme by removing a distracting scandal.

"I do not think that the resignation of the central bank governor will have a negative impact," Ankara's TOBB University of Economics and Technology professor Fatih Ozatay said.

"Moreover, this is a development that will take the pressure off the central bank."

Veteran emerging market analyst Timothy Ash agreed.

"Erkan did the only thing she could have done given the seriousness of the allegations which have emerged in recent weeks," Ash said.

"This was absolutely the correct decision on her part -- the best thing for the (central bank) and the country. Simsek and his reform team remain in charge."

Analysts view Erkan and Simsek's ability to convince Erdogan to perform an economic U-turn one Turkey's biggest success stories of recent years.

The central bank lost much of its independence during the second decade of Erdogan's rule.

The Turkish leader had parted ways with past central bankers who resisted his pressure to lower interest rates and achieve economic growth at all costs.

Erkan became Erdogan's fifth central bank governor since 2019.

But most analysts and Turkish media expect Erdogan to pick a market-friendly economist in her place.

"The change of governor.. will not make a long-term impact on the financial markets because it does not indicate a new monetary policy direction," said Koc University professor Selva Demiralp.

"On the contrary, it may be instrumental in repairing the credibility of the central bank."