While President Erdoğan and his advisors called for a candidate who favors lower interest rates and inflation, Prime Minister Davutoglu and Minister Simsek sought a new head for Central Bank to win investors confidence with independent monetary policy. Çetinkaya's nomination as a professional from inside the Central Bank of the Republic of Turkey (CBRT) is important and positive. It should be welcomed by the markets and investors, at least initially. The lira traded 0.65 percent lower at 2.8308 against the dollar at 8 p.m. in Istanbul.
Çetinkaya was appointed as deputy chief back when Erdoğan was prime minister. He is the second youngest person to lead CBRT with good credentials as a central banker for four years combined with experience at state-owned bank Halkbank and Islamic banks Albaraka and Kuveyt Turk. He studied political science, international finance and economics at Boğaziçi University, where I graduated from too.
The monetary policy committee under the leadership of Başçı cut interest rates in response to increasing political pressure over the past few years. Başçı has consistently failed in meeting inflationary targets tainting CBRT's credibility. The president and his advisers stepped up criticism of the bank's monetary policy for over a year, calling for radical rate cuts to spur economic growth, employment and foreign investments. As I see it now, Çetinkaya's appointment reflects President Erdoğan weighing in on the Turkish monetary policy.
The real test for Çetinkaya will be one of balancing vocal demands from political ranks for more dovish monetary policy with 'radical rate cuts' as Economy Minister Mustafa Elitaş put it last week versus maintaining investors' confidence to continue financing current account deficit in a low-growth global economy with significant financial and geopolitical risks.