Turkish PM picks deputy governor as next central bank chief

ANKARA/ISTANBUL: Turkish Prime Minister Ahmet Davutoglu has chosen deputy central bank Governor Murat Cetinkaya to be the governor, two senior officials told Reuters Monday, reassuring investors who had feared a power struggle over the nomination. Current Gov. Erdem Basci’s term expires on April 19 and there had been market concern that President Recep Tayyip Erdogan, a vocal advocate of low interest rates despite Turkey’s high inflation, might seek to impose a candidate of his choice.

A government official and an economy official both said Davutoglu’s decision had been discussed with Erdogan and that Cetinkaya’s name would be circulated for approval at a Cabinet meeting later Monday. The officials declined to be identified because the decision has not yet been made public.

Cetinkaya, born in 1976, has been a deputy governor since June 2012. He has a background in Islamic banking, beginning his career at Albaraka Turk and working as a deputy director at Islamic lender Kuveyt Turk in his last private sector position before joining the central bank.

“Compromise candidate, so good that the presidency and government are working together on this ... A battle over the nomination would have been very market negative,” Timothy Ash, strategist at Nomura, wrote in a note.

The lira firmed slightly to 2.8261 against the dollar as news of Cetinkaya’s expected nomination emerged. Turkey’s 10-year benchmark bond yield fell to a five-month low below 9.8 percent.

But economists cautioned that his monetary policy stance was not well-known and that, beyond the initial relief at the end to uncertainty, he would need to win the confidence of the market. He will chair his first policy meeting on April 20.

“I have doubts about whether Cetinkaya can fill Basci’s shoes either academically or in terms of expertise. His stance on monetary policy will be decisive from now on,” said Haluk Burumcekci of Istanbul-based Burumcekci Consulting.

Former central banker and Hurriyet newspaper columnist Ugur Gurses said that Cetinkaya’s background in Islamic banking suggested his appointment was backed by Erdogan, who wants to see the sector developed in Turkey.

“I don’t understand why the market celebrates ... I think the new governor will be more courageous than Basci on interest rate cuts,” he said.

Deputy premier Mehmet Simsek was earlier quoted by the state-run Anadolu Agency as saying that the new central bank governor would come from within the institution and would be named in the coming days.

Basci’s reluctance to cut interest rates had frustrated Erdogan, who argues Turkey needs lower borrowing costs to stoke growth, unnerving investors worried about political influence over monetary policy.

Other senior figures in government saw Basci as a steady hand in difficult economic times, and fear Turkey can ill-afford a disruptive change at the top of the central bank when it is facing growing headwinds.

The central bank kept its main interest rate on hold for the 13th consecutive month in March but cut its overnight lending rate, the upper band of its “rate corridor,” in a move which some economists saw as a sop to political pressure.

Erdogan said Monday banks should lower interest rates on consumer loans, while one of his aides said the central bank should continue to cut the overnight lending rate.

“We think Mr. Cetinkaya will struggle to resist increasingly vocal demands from Mr. Erdogan and his allies for looser monetary policy,” William Jackson, an economist at Capital Economics, wrote in a note.

A version of this article appeared in the print edition of The Daily Star on April 12, 2016, on page 4.




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