Türkiye’s economy shows signs of disinflation, two top economic policymakers said on Thursday in presentations to foreign investors and a Turkish industry group.
Türkiye’s finance chief said Thursday that the “hardest part,” for inflation was left behind, forecasting the drop in the annual reading would continue in upcoming months, reiterating the economic program “is working.”
“The hardest part stayed behind. Last year at around this period we said we needed about one year for the disinflation process. We defined this as a ‘transitionary period.’ We said during this period inflation would increase and would see the peak in May and that then it would fall fast and in a lasting way,” Treasury and Finance Minister Mehmet Şimşek told during a high advisory board meeting of Turkish Industry and Business Association (TÜSIAD).
Start of disinflation
He pointed out Türkiye was at the “start of a disinflation period” at the moment, conveying the expectations that inflation would continue to decline in the upcoming months.
“Next month, most likely inflation would drop to around 60%, and the month that follows to around 50% and the month after that could most likely drop slightly below 50%,” he said.
Annual consumer prices rose 71.6% in the 12 months to June, according to official data by the country’s statistical institute earlier this month, slowing down from the peak of 75.4% in May, the highest since November 2022.
The pace of month-over-month increases, the central bank’s preferred gauge also cooled markedly and slowed to 1.64% from 3.37% in May.
Şimşek reiterated the central bank’s target for the year-end of 38% but said they “have a tolerance range of up to 42%,” adding that their aim is to bring this figure below 20% next year and below 10% in the year after that.
The minister also said that there “is a significant improvement in inflation compared to last October,” adding that they expected the market expectations to converge more with their targets in the upcoming period after a further drop in inflation.
Stating that they are striving to ensure justice and efficiency in taxes, Şimşek added, “Everyone should share the burden of the program fairly,” underscoring the work is underway in this direction.
At the event, which was closed to the press, Şimşek promoted steps to modernize tax collection and review spending, as part of what he called a “structural transformation” toward more balanced and sustainable growth, attendees said, according to a Reuters report.
The Turkish government is in the process of finalizing a comprehensive tax reform package that includes the imposition of minimum corporate and income taxes, a part of a broader effort to enhance the country’s fiscal discipline and ensure a more equitable tax system.
Separately on Thursday, the central bank chief also noted Türkiye was on the verge of disinflation, as part of his presentation to foreign investors.
Tight stance continues
Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan said the tight monetary policy stance would continue as Türkiye enters a sustained disinflation period, according to his published presentation to the investors at an event hosted by JPMorgan in Istanbul.
The presentation also indicated the governor citing that the domestic demand is showing signs of normalization while the current account balance continues to improve and inflation indicators point to “a decline in the underlying trend.”
Emphasizing that services inflation still poses a risk, Karahan added that different leading indicators give signals of a slowdown in rental inflation.
Stating that the “disinflation process started in June,” Karahan also stated that there is “a growing consensus that inflation will fall in the second half of the year.”
Karahan and Şimşek are spearheading Türkiye’s drive to tackle soaring inflation with tight monetary and fiscal policy.
CBRT has hiked rates by 4,150 basis points in a year after authorities reversed years of loose policy following last year’s presidential and parliamentary elections.
They sought to cool demand, the main driver of inflation, flip current account and budget deficits, rebuild foreign exchange reserves and stabilize the lira.
Both Şimşek and Karahan also cited a decrease in the country’s risk premium observed since last year, with Şimşek saying the contraction is around 450 points, and there was “a tremendous improvement in the risk premium compared to similar countries,” referring to other emerging markets.
The separate data published by the central bank showed Thursday that its total reserves reached an all-time high of $148.4 billion in the week of July 5, increasing by $5.5 billion compared to the previous week.
The CBRT has been steadily building its reserves in the last couple of months, providing an additional boost for policymakers on the path of disinflation and achieving targets.
