Turkiye’s Economic Policies

Turkiye is committed to carrying out its tight economic policies in order to cool inflation. The country’s Vice-President, Cevdet Yilmaz, announced that although they may fine-tune the program, they will not change course. This statement was made in comments that were embargoed until Friday.

Current Economic Policies

The current economic policies in Turkiye have been in place for over two years, with a focus on reducing price pressure through tight monetary and fiscal policies. As a result, financing and borrowing costs have increased, affecting businesses and households. Despite this, inflation has slowly decreased over the last year, but it remains high at 31% annually.

Adjustments to the Program

Yilmaz stated that any adjustments made to the program would aim to support production, investment, and exports, while also moderating consumption. He emphasized that the program is dynamic and adjustments can always be made. This approach is designed to help the country achieve its economic goals while minimizing the negative effects of high inflation.

Inflation Projections

The government expects to see improvements in inflation in the first quarter, which should reflect market expectations for year-end inflation around 23%. The government projects that inflation will dip to 16% by the end of the year, within a range of 13%-19%, and will continue to fall to 9% in 2027. The central bank forecasts inflation to be between 13%-19% by the end of 2026.

Agricultural Sector

The agricultural sector is expected to support growth and help ease price rises this year, which could help achieve official inflation targets. Yilmaz noted that inflation fell by nearly 45 points, despite pressure from elevated food prices due to agricultural frost and drought.

Economic Growth and Stability

The government wants to avoid a rapid drop in inflation that could hurt economic growth, jobs, and social stability. Turkiye’s economic program was established in 2023 to address long-standing current account deficits and dislodge high inflation expectations. The program aims to boost production and exports, while also improving financial conditions.

Interest Rates and Currency

The central bank raised interest rates as high as 50% in 2024 but eased policy through most of last year, bringing the key rate down to 38%. Yilmaz stated that what matters is real interest rates, and lowering rates as inflation falls does not affect real rates. Therefore, the government does not expect a significant impact on the currency.

Conclusion

In conclusion, Turkiye is committed to its economic policies and will continue to fine-tune the program as needed. The government expects to see improvements in inflation and is working to support production, investment, and exports. With a focus on achieving official inflation targets and improving financial conditions, Turkiye is taking steps to ensure economic growth and stability. The country’s approach to economic policy is designed to address the challenges it faces, and the government is working to create a favorable business environment that will drive growth and development.