UPDATE 2-Erdogan considering Erkan as Turkey cenbank chief, sources say

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U.S.-based banker to meet Erdogan soon -sources

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Comes as Turkey signals economic u-turn

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President won re-election in late May

(Adds Erkan's background, government policy u-turn, quotes from paragraph 10)

By Orhan Coskun

ANKARA, June 5 (Reuters) - President Tayyip Erdogan is considering appointing Hafize Gaye Erkan, a senior finance executive in the United States, as central bank governor as Turkey prepares for a policy pivot, two senior officials with knowledge of the matter said.

Erkan met with Mehmet Simsek, Turkey's newly-appointed treasury and finance minister, in Ankara on Monday, one of the sources said. The two sources told Reuters she is set to meet Erdogan soon to discuss the possible role.

The meetings - just over a week after Erdogan won re-election - come as the government signals it is preparing a U-turn to more orthodox policies, including interest rate hikes, to address a cost-of-living crisis.

The second source said Erkan was one of "a few candidates" to succeed current bank chief Sahap Kavcioglu, who spearheaded Erdogan's unorthodox policy of slashing rates since 2021 despite inflation soaring to a 24-year peak above 85% last year.

A former co-CEO at First Republic Bank and managing director at Goldman Sachs, Erkan could not be immediately reached for comment.

Erdogan's office and the Treasury ministry did not comment on Erkan.

After he was appointed to cabinet over the weekend, Simsek said the country has no choice but to return to "rational ground" to ensure predictability in the economy.

Turkey's policy rate was cut to 8.5% from 19% in 2021, setting off a historic currency crash in late 2021. It left real rates deeply negative and the lira largely managed by dozens of regulations covering credit and foreign exchange.

Erkan's policy leanings are unclear given she has no formal monetary policy experience in her career spanning Wall Street and U.S. corporate boardrooms, and her Ivy League education including a financial engineering Ph.D. from Princeton.

She is respected in New York's financial industry and "considered tough, smart, and effective", said Kathryn Wylde, president and CEO of Partnership for New York City, a nonprofit organisation where Erkan once served as a board director.

"She is certainly not someone who can be pushed around, but she also can disagree without being disagreeable," Wylde said.

In her early 40s, she would if appointed represent a new generation atop Turkey's central bank, which has had its independence all but stamped out in recent years by Erdogan, a self-proclaimed "enemy" of interest rates who pressed it to deliver stimulus and was quick to replace governors.

Erkan would be the country's fifth central bank chief in four years.

She was at First Republic from 2014-2021, according to her LinkedIn profile. This year, it became the largest U.S. bank to fail since 2008 after it was seized by regulators and sold to JPMorgan.

QUESTION OF INDEPENDENCE

Turkey's apparent U-turn on the economy comes as many analysts say the big emerging market is heading for turmoil given depleted foreign reserves, unchecked inflation expectations and wide current account deficits.

The central bank has been the linchpin of Erdogan's programme of monetary stimulus and targeted credit to boost economic growth, exports and investments.

The bank also keeps a heavy hand in currency, lending and debt markets, complicating the flow of credit in the economy, while its own net foreign exchange reserves dipped into negative territory to a record low of -$4.4 billion late last month.

After past episodes in which Erdogan pivoted to orthodoxy only to quickly backtrack, the economy's prospects depend on how much independence he grants a new central bank chief and Simsek, analysts said.

The last central bank governor to raise rates, Naci Agbal, was fired in 2021 after less than five months on the job.

"It is unclear for how long Erdogan may tolerate a more pragmatic stance on the economic front," said Wolfango Piccoli of Taneo.

Erkan is a director on Marsh McLennan's board and was named CEO at Greystone, a real estate finance and investment firm, last year.

(Writing and additional reporting by Jonathan Spicer; Editing Daren Butler, Angus MacSwan and Emelia Sithole-Matarise)