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Turkey to lower inflation after transition period  

Monetary and fiscal tightening will help support disinflation, said Turkish finance minister Mehmet Şimşek Reuters
Monetary and fiscal tightening will help support disinflation, said Turkish finance minister Mehmet Şimşek

Turkey aims to lower soaring inflation permanently after a transitional period where prices remain high, finance minister Mehmet Simsek said in an interview with the Yeni Safak newspaper.

“Our goal is to bring down inflation permanently after a transitional period,” Simsek said.

The sustained price pressure, driven by a drop in the lira currency and tax hikes, comes as President Tayyip Erdogan’s new finance minister Simsek and central bank chief orchestrate a policy U-turn, including interest rate hikes, that are expected to slow domestic demand.

The monetary tightening – after years of aggressive rate cuts – is meant to cool inflation by mid-2024. But in the meantime the U-turn has hammered the currency and left authorities asking already stretched households for patience.

“As you can see from the central bank’s projections, inflation will continue to rise temporarily due to certain factors in the coming months,” Simsek said.

“We have implemented some tax regulations to improve budget balances and address the aftermath of the earthquake. These tax adjustments are indeed inflationary, but they will not be repeated. These are one-time adjustments we have made.”

The central bank under new governor, Hafize Gaye Erkan, has raised its key rate by 900 basis points to 17.5 percent since June, though the pace of tightening missed market expectations. Last week it more than doubled its year-end inflation forecast to 58 percent, meeting expectations.

Inflation touched a 24-year peak of 85.5 percent last October. It subsequently eased due to a relatively stable currency and the so-called base effect but then rose sharply again in July to nearly 48 percent.

Simsek said increasing the predictability of economic policies was one of the main goals in order to attract foreign investment into the country.

“As uncertainty decreases and current account deficit narrows in the coming period, there will be an increase in capital inflows to Turkey. I believe we will move towards relative stability in the exchange rate and this will also have a positive impact on the inflation outlook.”

Simsek also said he expected the “productive discussions” Turkey had last month with Gulf countries regarding investments to bear fruit starting this year.