The ‘bridge’ of Central Bank undergoing rapid change

One of the six members of the Central Bank board, Ahmet Faruk Aysan, has quit just before the annual general assembly of the Central Bank. Aysan departed because he wanted to return to academic life, it was reported. He informed Deputy Prime Minister Mehmet Şimşek and Central Bank Gov. Murat Çetinkaya of his decision. 

As you may know, the Central Bank General Assembly will convene in the near future and two members of the executive board were to be determined. Now, this number has become three.  

Let us look at the “technical side” of the story. Aysan was appointed to the board in November 2011. The board of the Central Bank is the executive committee of the bank. However, interest rate decisions are made by the Monetary Policy Committee (PPK). Aysan was made a member of PPK in November 2011 as well. The one member of the seven-member PPK is appointed by the Bank Assembly. Aysan’s term in the board was renewed last year on April 11 for another three years; as a matter of fact, Çetinkaya was appointed as governor one week before at the General Assembly.

Each year, the terms of two members of the bank board expire. Expired terms can be renewed, which was what has happened most of the time in the past 10 years. This year also, the terms of two members are expiring. Either they will be renewed or new members will be appointed. With Aysan’s departure, three members may be appointed. 

Looking at the administrative choices of Çetinkaya who will mark one year in the job on April 17, it is highly probable that three new members will be appointed. Thus, Çetinkaya, after deputy presidents, will have changed half of the board, securing a tight grip. 

Evidently, Çetinkaya does not want to work with Aysan. There could be a possible difference of opinion behind this. But, in the Central Bank école, one does not quit due to difference of opinion, because this would harm the institution and the currency. This must be the mark of Çetinkaya’s efforts to change the top management in one year. 

However, there is a bigger picture that this departure and these potential changes reminded us of: The inflation rate in Turkey has hit a 8.5-year peak, core inflation is again exceeding 10 percent and while pricing behavior is disrupted, the interest rate policy of the Central Bank is both inadequate and behind the game, which also gives the signal that it will be temporary. Academic economists, especially those who want to preserve their reputation, cannot be at ease in supporting this stance. 

The Central Bank Bank’s main rates were kept between 8 percent and 9.25 percent. However, instead of changing these, it is funding the banks with 11.75 percent Late Liquidity Window Interest Rates. Even if this interest rate is accepted, it will be difficult to curb inflation expectations in the coming months with this core inflation tendency. 

If the Taylor rule is taken into account, then the Central Bank should increase the rates to 14.5 percent. These calculations are now done instantly through information and news terminals such as Bloomberg, to make policy estimations. Of course, this is also a good guide to see how much the central banks have deviated from the “main road.” In this picture, the effect of the potential change in the decision making board can be seen. Unable to anchor, the Central Bank is now changing the officers on the bridge.