Inflation in Türkiye is projected to fall to single digits at the end of 2026, Treasury and Finance Minister Mehmet Şimşek said recently as he asserted inflation is "responding" to the economic program the government is implementing.

Delivering a presentation on Türkiye's economy at an event at the Brookings Institution during his trip to Washington, Şimşek evaluated topics such as disinflation path, growth rate, rebalancing of growth, narrowing current account deficit and reserve accumulation.

"We do see inflation coming down back to high single digits sometime at the end of 2026," the minister said.

He continued on to say that inflation is "responding" to the economic program, citing the fall in core goods and overall inflation, pointing however, to the stickiness or "inertia" when it comes to services inflation.

"What is holding us back from a faster decline in headline inflation is stickiness in services inflation," he said, adding that it "takes time," as services inflation is proven to be relatively above headline inflation in general, even in the case of the U.S.

Furthermore, the minister pointed out there is a "strong commitment," by policymakers to disinflation as he drew attention to the monetary tightening and selective credit tightening, adding that the monetary policy works "with lags."

"Monetary policy works but it usually works with variable and long lags. So we are not unique here either," he said.

Turkish central bank has lifted interest rates by a cumulative 4,150 basis points from June 2023 – when Şimşek took over as the country's finance chief following elections – through March this year in bid to curb stubborn inflation.

Şimşek also noted there would be fiscal support in the coming 12 months, pledging to reduce fiscal deficit "meaningfully from around 5% of gross domestic product (GDP) to about 3%."

"So, the negative fiscal impulse is going to help bring inflation down," he said, adding that the pricing behavior of corporates is also changing in a positive way and that a more supportive income policy will accelerate the disinflation process.

The minister also highlighted that disinflation is essential to a sustainable high growth rate, as he recalled Türkiye's strong track in growth over the past century and in the last two decades.

He noted the temporary slowdown this year, but said that "Türkiye needs to achieve price stability to sustain high growth."

"The program is really delivering, it is working," he maintained.

The annual inflation rate dropped to 49.4% in September compared to peak of around 75% in May.

Narrowing gap, drop in FX-protected volumes

As part of his remarks, the minister also reflected on narrowing the current account deficit to below 1% of GDP as of the third quarter, citing substantial improvements following the implementation of the new economic program.

Şimşek also noted a moderation in gold imports since last year, and works on speeding up the energy transition to renewables which in the future would decrease the country's annual gas and oil import bill and positively reflect on the current account balance.

He also reported a significant drop in FX-protected deposits, the so-called KKM scheme of over $102 billion compared to August 2023.

On part of what's next in the unwinding of macroprudential measures, Şimşek said they were still looking at additional steps. The presentation showed the next steps under consideration include removing the short-selling ban on Türkiye’s BIST-50, although the minister did not elaborate on details.

He also evaluated the issue of trade fragmentation, which he said is now "a reality," but added that Türkiye has 54 free trade agreements with the EU accounting for half of them, adding that "60% of our total exports are to countries with which we have free trade agreements."

"Our trade with the EU is balanced, is sizeable," he added, pointing to strong trade between the duo, which he argued would not change despite certain political disagreements.

Şimşek also underscored Türkiye's strong and qualified labor force, fast-growing economy, investments in infrastructure and the country's standing as the third most innovative economy within its peer group.

Separately, in a social media post, the minister evaluated the contacts in the United States, where he was for the 2024 Annual Meetings of the International Monetary Fund (IMF) and World Bank, noting they held "many investor meetings and bilateral talks."

"The strong interest in our country clearly shows that our program is progressing in the right direction," he wrote on X.

As part of meetings with top officials, Şimşek and the Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan held talks with U.S. Treasury Secretary Janet Yellen.

The minister also met IMF Managing Director Kristalina Georgieva, who praised the country's progress on inflation.

"Thanks to bold policy action, Türkiye is making good progress in bringing down inflation," Georgieva said in a post on X.