All eyes on new central bank chief

In modern times, the independence of the central banks is seen as one of the prerequisites of a healthy economy to the extent it can control inflation and price stability. The reason behind the independent central bank is its ability to make monetary policies without short-term political concerns and thus to support durable growth.

These basics are also valid for the Turkey’s Central Bank whose five main duties are achieving and maintaining price stability, ensuring financial stability, designing and implementing an exchange-rate regime, printing and issuing banknotes as well as running payment systems.

The success of a nation’s economy is surely based on the coordination between the Central Bank and the government’s economic policies especially at times when the economy is volatile and vulnerable. This corresponds to Turkey’s current situation.

As a result of a long-standing dispute between Governor of the Central Bank Murat Çetinkaya and the Justice and Development Party (AKP) government over monetary policies, President Recep Tayyip Erdoğan removed the governor from his job through a presidential decree he issued early on July 6.

The governor has long been rejecting calls from the president to lower the interest rate in order to avoid a further plunge of the Turkish Lira and higher inflation.

However, Erdoğan is a long-term advocate of the idea that high inflation is the consequence of high-interest rates and accuses the Central Bank of not following the same line, although many economists find Erdoğan’s theory contradicts well-established economic principles.

In addition, economic and political experts have found the removal of Çetinkaya as controversial on the grounds of economic, legal and administrative concerns. The common point of the opposition parties’ criticisms cited their concerns that this move would end the independence of the Central Bank.

Durmuş Yılmaz, former governor of the Central Bank and a member of Parliament from the ranks of the Good Party, argued that the government cannot fire the governor of the central bank, according to the law on the Central Bank. “This is an inseparable part of the insurance of the independence of the Central Bank,” he said.

Faik Öztrak, deputy leader and spokesman of the Republican People’s Party (CHP) and former advisor to the Treasury, slammed the government’s decision to remove Çetinkaya as a move to tie the Central Bank directly to the presidency.

A statement issued by the Central Bank on July 6 stated that Çetinkaya’s deputy, Murat Uysal, has been appointed as the new governor. In his first statement as the governor, Uysal sought to assure the markets that the bank “will continue to independently implement monetary policy instruments focused on achieving and maintaining its primary objective of price stability in line with the duties and responsibilities granted to him by law.”

One other point he underlined is that he will utilize communication channels at the maximum level as it was one of the criticisms his predecessor has long been facing. He is expected to hold a press conference in the coming days, read the statement.

The timing is also attention-grabbing. It comes as the government is working on a regulation that would allow the transfer of the Central Bank’s reserves funds kept in Turkish Liras to the budget, a move that has already drawn criticisms from the economy circles. Yet, it comes ahead of the Central Bank’s Monetary Policy Committee meeting slated for July 25. Its decision on the interest rates will surely be very important in light of all these developments.

Yet, this move comes amid continued criticisms of the Turkish government for not undertaking substantial and structural reforms to guide the Turkish economy towards the future. Ignoring deficiencies on governmental economic policies and blaming them merely on the governor of the central bank does not seem to be just and reasonable.