Treasury and Finance Minister Mehmet Şimşek on Friday said disinflation in Türkiye would continue despite some recent deterioration in expectations, adding that the government still sees inflation ending the year within its target range.
Şimşek’s remarks came a day day after the central bank delivered a surprise 350 basis-point interest rate hike to 46%, reversing a short-lived easing cycle and signalling renewed commitment to tackling inflation.
The Turkish lira, stocks and bonds fell sharply following last month’s arrest of Istanbul Mayor Ekrem Imamoğlu, pending trial on graft charges. Authorities acted to help assets recoup some of the losses.
“Inflation has been falling for 10 months and will continue to do so. The recent deterioration in expectations may have had some effect, but we believe we will stay within the target by year-end,” Şimşek said.
He was speaking via video link at the International Economic Summit in the Sapanca district of the northwestern Sakarya province.
The central bank’s unexpected hike marked a shift from the easing that began in December, aiming to anchor inflation expectations and stabilize markets.
Annual inflation slowed to 38.1% in March. It marked the lowest since December 2022 and compared to a peak of around 75% last May. The central bank’s year-end forecast remains at 24%.
Economists expect the lira’s recent weakening to feed into April and May inflation
Şimşek also said the impact of foreign exchange rate pass-through on inflation would remain limited due to weak domestic demand.
“The lira has experienced a limited depreciation, but due to weak domestic demand, we expect the exchange rate pass-through to remain low,” he said.
The lira depreciated some 3% against the U.S. dollar in March but has remained relatively stable since then. It traded up 0.5% at 38.1779 against the dollar at 1:40 p.m. local time Friday. It had touched a record 42 to the dollar after Imamoğlu’s detention before authorities acted to stabilize it.
The central bank said the recent market turbulence was expected to slightly lift April inflation readings and reiterated that further tightening would be considered if inflation risks persist.
The central bank on Thursday said “recent developments in financial markets” are expected to slightly lift monthly core goods inflation in April, adding domestic demand is above projections, “suggesting a lower disinflationary impact.”
“Inflation expectations and pricing behaviour continue to pose risks to the disinflation process,” it said. Further tightening would be needed “in case a significant and persistent deterioration in inflation is foreseen”, it added.
Şimşek also referred to the role of falling oil prices and tighter financial conditions in reducing inflationary pressures. He still noted that recent financial market volatility could cause a temporary slowdown in economic activity.
“We are approaching a threshold where we can achieve moderate growth without generating a current account deficit,” he added.
“However, there are still measures to be taken. Recent developments in the markets, particularly the decline in oil prices, suggest a current account deficit below (medium-term) program targets.”
Şimşek also pointed to the global market turmoil caused by what has become an all-out trade war between the United States and China, with both sides ratcheting up their import tariffs.
He acknowledged that volatility could lead to temporary slowdowns in the economy.
