Turkey Strips Government of Role in Naming Central Bank Chief

(Bloomberg) -- Turkish President Recep Tayyip Erdogan has signed off on a series of changes to the way the central bank’s top leaders are chosen, signaling he plans to follow through on a pre-election pledge to tighten his grip on monetary policy under the new executive presidency.

The government decree, which was published in the official gazette and carries the force of a law, removes a clause stipulating that the central bank governor be appointed by the government for a term of five years. It does not, however, spell out who would be responsible for future appointments or what the new term limit on the central bank’s top job would be.

The decree also deprives the governor of a say in the selection of deputy governors who sit on the Monetary Policy Committee that sets interest rates.

Cemil Ertem, a senior aide to Erdogan, said in a Twitter post that details of how central bank leaders are to be appointed would be published in a separate decree later Monday. What “is certain,” said Ertem, is that the governors will be appointed by the president. It was not immediately clear who else, if anyone, would be involved in the selection process.

The lira erased earlier gains after the decree was published and was trading 0.2 percent lower at 4.5822 per dollar at 5:24 p.m. in Istanbul.

The unexpected move leaves key details on the future functioning of the central bank unanswered but signals that Erdogan intends to keep to a pledge in May to increase his control over the way monetary policy is made. His comments sent the currency tumbling at the time, forcing the bank to hike rates.

“We don’t know what exactly they want to change here. Is it the appointment process, is it the term, or is it both?,” Inan Demir, an economist at Nomura International in London, said by email. “Presumably they’re after a bigger change. But we’ll probably need another decree to clarify this.”

For more on changes, read: Turkey Decree Removes Cenbank Law Article on Governor’s Term (1)

©2018 Bloomberg L.P.

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