Turkish President Recep Tayyip Erdogan joins legislators elected to the Grand National Assembly of Turkey in the May 14 parliamentary elections and attend their first parliamentary session to take the oath, in Ankara, Turkey, on June 2, 2023. AP
Erkan -- a former chief executive of US real estate finance firm Greystone, co-CEO of First Republic Bank and managing director at Goldman Sachs -- will be the first woman to head the central bank.
She takes over from Sahap Kavcioglu, who lowered rates even though central banks worldwide have done the opposite to fight inflation. Her appointment was published in the official gazette on Friday.
Under Kavcioglu's watch, the bank's policy rate was decreased to 8.5 percent. It had been at 19 percent in 2021.
Turkey's inflation rate dropped below 40 percent in May for the first time in 16 months. Independent economists believe it is much higher, above 100 percent.
Erdogan, who was re-elected to a third term in office last month, already signalled a shift on Saturday when he unveiled a new cabinet with Mehmet Simsek, a former Merrill Lynch economist, as finance minister.
Simsek -- who worked as finance minister and deputy prime minister in the past ruling AKP governments -- is known to oppose Erdogan's unconventional policies of lowering interest rates in order to fight inflation.
'Purged' central bank economists
Analysts say investors are less interested in how talented the new economic team is than in their ability to resist pressure from Erdogan, who once called high rates "the mother and father of all evil".
"Simsek & Erkan will be judged on monetary policy moves, inflation and lira," emerging markets economist Timothy Ash said on Twitter.
The Turkish lira was down 1.6 percent against the dollar on Friday, after falling to a new low on Wednesday.
One of Erkan's main challenges this year will be to repair the working atmosphere at the central bank, according to Erik Meyersson, chief emerging markets strategist.
"Too many bright economists and bureaucrats were purged, reassigned, demoted, ostracized, and there's a talent reserve that she should look to tap into. But would they want to return?" he tweeted.
Erdogan in the past sacked central bank governors after disagreements over interest rate policy, in a move that unsettled investors.
After taking office, Simsek said Turkey had "no choice but to return to rational ground" -- a sign of turning away from the low-rate policy.
"As we navigate through domestic and international challenges, we affirm our commitment to rules based policy making to enhance predictability," Simsek said on Twitter after the lira fell this week.
"While there are no short cuts or quick fixes, rest assured that our experience, knowledge & dedication will help us overcome potential impediments ahead," he tweeted.
"Our immediate priority is to strengthen our team and design a credible program."
Erkan was born in Turkey and graduated from Istanbul's top Bogazici University. She earned a PhD scholarship to Princeton.
She joined Goldman Sachs in 2005 as an associate and was named managing director in 2011.
She later worked at First Republic Bank in 2014 where she earned the titles of senior vice president, chief investment officer and co-chief risk officer.
She was seen as the heir apparent to the bank's founder and longtime CEO, Jim Herbert, but abruptly resigned in December 2021.
"It was time for a change and for a new challenge," Erkan told Bloomberg Television last year.
The bank was embroiled in the US banking crisis in March this year.
US financial authorities seized First Republic in May and sold it to JPMorgan Chase, hoping to bring an end to turmoil that brought down three other regional banks.
Erkan was appointed chief executive of Greystone in June 2022, but she resigned in December.
The firm said at the time that her departure was "amicable" and "related to her decision to focus on new opportunities in the financial sector".