President Erdogan appointed hawkish Deputy Governor Fatih Karahan as CBRT Governor, replacing Hafize Gaye Erkan. Following family allegations against Hafize Gaye Erkan two weeks ago, Hafize Gaye Erkan decided to resign on 2nd Feb. President Erdogan appointed hawkish Deputy Governor and former Fed economist Dr. Fatih Karahan as a new Governor. Three deputy governors namely Dr. Fatih Karahan, Dr. Cevdet Akcay, and Dr. Hatice Karahan were instrumental in delivering rate hikes amounting to 36.5%-pts, the simplification of macroprudential regulations, and boosting CBRT`s FX reserves. It is worth emphasizing that the CBRT accelerated rate hikes with an outsized 750bp hike following the appointment of the three deputy governors in August 2023.
While sudden leadership changes bring discomfort for investors, we see the new CBRT Governor as positive for disinflation and lira. We think that the reshaped MPC is likely more hawkish. The stance of two MPC members – Dr. Elif Haykir Hobikoglu and Dr. Fatma Ozkul- is not known but the Governor and two hawkish deputy governors will likely drive MPC decisions with increased focus on disinflation, in our view. It is now likely that the dovish tilt in its last MPC statement will be reversed. We expect that CBRT Governor Fatih Karahan will deliver hawkish forward guidance in CBRT`s Inflation Report Press Briefing next Thursday, if not earlier.
We expect high rates for longer along with tighter macroprudential measures as monetary policy is likely to be more sensitive to the inflation outlook going forward. We now see a rate hike by the CBRT as more likely than a rate cut.
However, we don’t yet believe that a rate hike will actually be delivered and keep the peak policy rate at 45% – recognizing upside risks to it.
Another positive is that Governor Fatih Karahan is likely to bring more coordination between monetary and fiscal policies to fight inflation. Treasury and Finance Minister Mehmet Simsek stated that new Governor Fatih Karahan is appointed with his support. Vice President Cevdet Yilmaz also endorsed the new CBRT Governor Fatih Karahan. We believe that the coordination between fiscal and monetary policies is crucial to see disinflation in 2H24 by limiting tax hikes as well as wage hikes along with administered energy price hikes.
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