Complex Made Simple

Turkish cabinet approves deputy governor Cetinkaya as next central bank chief

Cetinkaya has been the deputy governor at the central bank since June 2012

The Turkish cabinet approved the appointment of Murat Cetinkaya as the new chief of the central bank on Monday, the government spokesman said, choosing a candidate from an Islamic finance background while reassuring investors who had feared a power struggle over the nomination.

Current Governor Erdem Basci’s term expires on April 19 and there had been market concern that President Tayyip Erdogan, a vocal advocate of low interest rates despite Turkey’s high inflation, might seek to impose a candidate of his choice.

Prime Minister Ahmet Davutoglu said he had discussed the nomination with Erdogan and that Cetinkaya brought institutional continuity and stability and had the trust of investors.

“We were convinced that Mr. Cetinkaya would best fulfill this role (and has) the respect of financial markets,” Davutoglu said in a live broadcast on HaberTurk television, adding the choice would disappoint those looking for a crisis in markets.

Cetinkaya, born in 1976, has been a deputy governor at the central bank since June 2012. He has a background in Islamic banking, which follows religious principles and prohibits charging interest, beginning his career at Albaraka Turk and working as 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. The 10-year benchmark bond yield fell to a five-month low below 9.8 per cent.

But economists cautioned that monetary policy stance was not well known and that 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 told Reuters.

Resisting pressure

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.

Turkey will appoint Basci ambassador to the Organisation for Economic Co-operation and Development (OECD), Davutoglu said.

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 economic 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 on 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.