Gaye Erkan’s resignation… "There was never a chance of success, and the newcomer won't be able to do it either"

In his previous articles and assessments, Meriç Köyatası had emphasized that Gaye Erkan would leave her post within a short time. He stressed that inflation cannot be brought under control solely through interest rate hikes while palace expenditures and the budget deficit are increasing.

Reminding that Gaye Erkan targeted the President and Minister Mehmet Şimşek with her statements in an interview with Ahmet Hakan, Köyatası said the following:

The Central Bank Governor never had a chance of success. We said this as soon as she took office. We said she would leave within a short time. Why did we say this? They dumped the fight against inflation onto the Central Bank. But the government spends as it pleases in the budget.

They increased the 2023 budget deficit by 10 times compared to the previous year. They increased it by 2 times in 2024 as well.

While such budget policies are being implemented and palace expenditures continue at full speed, what will the Central Bank do? Inflation cannot be brought under control with interest rate hikes alone.

You can cause inflation to explode with wrong interest rate policies. But you cannot fix it with the right interest rate policy.

You must maintain balance in budget and fiscal policies. That is still not enough; you must proceed with reforms, starting with the judiciary. Furthermore, you did not even leave Hafize Gaye Erkan free in the interest rate policy being implemented.

We keep saying it, we keep writing it. If you cannot measure it, you cannot manage it!

You are going to raise interest rates, but based on which inflation? Based on the makeup-applied inflation of 65% from TÜİK, or based on the 127% from ENAG that is actually experienced? When Hafize Gaye Erkan arrived, the Central Bank policy rate, which was 8.5%, became 45%. 45 is higher than 8.5, but it is still an extremely negative interest rate compared to the real inflation of 127-129%. How can you lower 129% to the 36% you target with these budget expenditures and this negative interest rate? No one believes this. And indeed, no one did. No one exchanged their foreign currency. Hot money did not come either.

The Central Bank set an inflation target of 36%, the government increased the budget by 85%. It increased the budget deficit by 100%. It will post a budget deficit of 2.5 trillion TL by the end of the year. Central Bank Governor Ms. Gaye cannot do it either. The newcomer cannot do it either. The President will not implement a balanced budget policy either. There is nothing left to be done in the Turkish economy by taking technical measures. It can only happen with a change in government and a change in policy.

As for the real reason why Ms. Gaye left… It is the interview she gave to Ahmet Hakan. Everyone criticized Ms. Gaye at that time for saying, “Rental apartments in Istanbul are more expensive than in New York, I am staying with my parents.” 12punto readers will remember. I wrote it in 12punto, I explained it on my YouTube channel. Central Bank Governor Ms. Gaye said the 2 things we had been saying in that interview. She said, ‘The emperor has no clothes.’ What did she say?

1. “I confirm the inflation from Sadık, the apartment superintendent. You are clearly saying to TÜİK that the inflation you measure is not correct.” What more could she say?

2. What she said that was more important was this: “How much more will the public tighten their belts in the fight against inflation? They have already tightened their belts to the limit.”

Ahmet Hakan had made this statement a headline. This is an open criticism of Mehmet Şimşek and the President. What was Mehmet Şimşek saying? “In the fight against inflation, we will not give raises to workers, civil servants, and retirees as much as past inflation in order to curb public demand. We will deter them by imposing high interest rates on credit card debts.”

We, the opposition economists, were saying that the demand of those whose real income is falling and whose share of the national income is decreasing does not increase inflation. We were saying that you should control the demand of the top 20% income group and the demand of those with black money.

Well… While asking how much more the public will tighten their belts, Ms. Gaye had also passed the buck in the fight against inflation to the President and Mehmet Şimşek.

The other issue that bothered Mehmet Şimşek was Gaye Erkan trying to talk to funds in the US and attract hot money. This is not a job that suits a Central Bank governor. This was the job of the Treasury Minister, that is, Mehmet Şimşek. As far as we have heard, Gaye Erkan had reached an agreement with 2 major fund managers in the US. I wrote about this last week.

Now, I do not know if that hot money will come. But the resignation statement of Gaye Erkan and Mehmet Şimşek was rendered void by the Official Gazette published two hours later. The President said, ‘No, I dismissed her.’ This behavior is a loss of reputation for the Central Bank, which appears to be independent in name.

Therefore, we can accept this as a storm warning for the markets this week. It is clear that the Central Bank will sell quite a lot of foreign currency through the back door this week.