Tax hikes for fuel and tobacco next year will be set in a way that will not endanger Türkiye’s 2025 inflation plans, according to Treasury and Finance Minister Mehmet Şimşek.
Türkiye’s annual inflation stood at 47.1% in November, its lowest level since mid-2023. The country’s central bank sees it ending the year at around 44% before easing to 21% by the end of 2025.
Taxes on fuel and tobacco are increased each year based on the producer price index and have a major impact on inflation.
But Şimşek’s statements on Sunday suggest the regular adjustments on these two items might be lower at the beginning of 2025.
"We will approach the special consumption tax on fuel and tobacco products in a way that does not jeopardize our inflation target,” the minister told reporters in southeastern Şanlıurfa province.
“You will see that the 2025 inflation will not be at risk," he said.
Şimşek said that the government was determined to sustain the recent decline in inflation.
To curb growth in price gains, Türkiye pursued an 18-month tightening effort since mid-2023 that marked a shift to more conventional policymaking.
The central bank carried out its first rate cut in nearly two years last Thursday, lowering its key interest rate by 2.5 percentage points to 47.5%
The one-week repo rate, last cut in early 2023, had been held at 50% since March.
The central bank earlier announced that it had reduced the number of scheduled policy meetings next year to eight from 12 in 2024.
Asked about the rate cut, Şimşek said: "The central bank has established the necessary framework for monetary policy to support disinflation, and this framework will continue strongly."
"The delayed effect of monetary policy, especially our fiscal policy projections for 2025, managed and directed prices, and structural reforms will permanently support disinflation,” he said.
“We have no doubts in this regard."
Discussing the factors that will influence the decline in inflation next year, the minister noted, "Firstly, monetary policy has a delayed effect. The contribution of monetary policy to the disinflation process will continue in the future, with a delayed effect lasting for 18 months."
Another impact will come from the budget, said Şimşek, stressing an aim to reduce the budget deficit from around 5% to approximately 3%, which he says will clearly demonstrate the disinflationary effect.
Şimşek mentioned that some items are evaluated within the framework of "budget revenue" and that for other managed and directed prices, officials will seriously consider the central bank's 2025 target.
Certain items, such as bridge and highway toll prices, have a limited share in the inflation basket, so price hikes in these areas have almost no effect on annual inflation.
Şimşek cited reforms as another impact, also stressing the priority on increasing food supply in the supply-side disinflation policy.
He added that increasing the supply of social housing is also an important component of supply-side policies.
"Energy transformation is critical because it will indirectly support disinflation through the current account deficit. Over the past 21 years, Türkiye’s energy imports have been 1.5 times the current account deficit, amounting to $948 billion,” he noted.
“Therefore, as our dependency on external energy decreases, thanks to the good work of our Ministry of Energy, inflationary pressures through the current account deficit and exchange rates will become more manageable.”
Şimşek also said that the country's foreign currency-protected deposit scheme, known as KKM, will be terminated without creating any volatility in the markets.
The central bank last week announced that the scheme would end in 2025.
The KKM balance, which peaked at $144 billion, has now decreased to the range of $30 billion-$35 billion, with approximately one-third belonging to legal entities and the remainder to individual deposits.
"We will continue to take steps to make KKM even less attractive," Şimşek said.
