President Recep Tayyip Erdoğan fully supports Türkiye's new economic program that features policies that require tighter monetary policy to rein in stubbornly high inflation, top economy officials said Thursday.
Erdoğan is known as a proponent of lower borrowing costs but said Wednesday that inflation would fall to single digits "with the support of tight monetary policy," marking his strongest pledge of support for his new economic team's policy overhaul.
After winning reelection in May, Erdoğan named a new Cabinet, including two accomplished bankers, who have launched aggressive interest rate hikes in a bid to tackle the country's long-term inflation issue.
Mehmet Şimşek, a former Merrill Lynch banker whom Erdoğan re-appointed as treasury and finance minister, emphasized the president's backing.
"Whether it's disinflation or the fiscal program, the president's support is complete," Şimşek, who is highly regarded by foreign investors, told a group of journalists.
"We are not just sensing this, we are also seeing it," he said.
The new team also includes Hafize Gaye Erkan, who took over as central bank governor. The first woman to hold that position, Erkan was previously co-chief executive of the now-failed San Francisco-based First Republic Bank.
Under Erkan, the central bank has roughly tripled its benchmark policy rate to 25% and pledged that monetary tightening will gradually be strengthened as needed.
"There is not even the slightest doubt" regarding Erdoğan's position, Şimşek said. "We will continue doing what this program requires."
Addressing the same briefing, Vice President Cevdat Yılmaz also stressed the president's support for the new approach.
"Even if you prepare the best program in the world, if there is no political will behind it, it will remain on paper," Yılmaz said.
"The fact that our president personally announced and said 'we support' is the greatest strength of this plan."
Analysts believe the monetary authority will need to raise the key policy rate much higher at the next meeting on Sept. 21 because inflation has shot back up to nearly 60%.
Erkan affirmed at Thursday's meeting that there was more tightening to come.
"We will continue with monetary tightening measures through all our tools until a significant improvement in inflation is achieved," Erkan said.
She said price growth could end the year higher than the upper band of the central bank's forecast. The central bank has said inflation would likely rise to near 62% by year-end, despite a more aggressive-than-expected 750-point rate hike in August.
"Disinflation is our first priority, there is no compromise on this," Erkan said.
She refrained from putting forward any terminal rate, saying: "It's not right to put out interest-rate numbers. It is essential to look by observing all together."
Şimşek recalled that Türkiye managed to grow rapidly and reduce inflation in the past.
"The conditions of each period may be different, but we believe that Türkiye will be able to capture this positive cycle very strongly from the second half of 2024, and global conditions will be favorable for this," said the minister.
Asked whether Erdoğan's emphasis on tight monetary policy was only aimed at interest rates and whether other steps would be taken, Şimşek said their approach would be "multidimensional."
"We will go to rebalancing in consumption items, which increases the current account deficit, and increases inflationary pressure. We will use all the instruments for that," he stressed.
The officials' remarks came a day after the government unveiled its new medium-term economic plan, which aims to lower inflation to single digits within three years.
The new forecasts show annual inflation rising to 65% by year-end before dipping to 33% next year, up from 24.9% and 13.8% respectively in year-earlier forecasts. It is expected to fall to 15.2% in 2025, before dipping further to 8.5% by the end of 2026.
The inflation surged to 58.94% over the 12 months ending in August. It had reached a 24-year high of 85.5% last October and stood at 47.83% this July after regressing to as low as 38.21% in June.
The government aims for an average 4.5% gross domestic product growth (GDP) rate in the three years to 2026. It trimmed growth forecasts to 4.4% this year and 4% next year, from 5% and 5.5% previously.
It sees the economy expanding by 4.5% in 2025 and 5% in 2026.
Erdoğan, who attended the presentation of the new medium-term program, stressed they would not sacrifice economic expansion or jobs as policies are adjusted.
Meanwhile, Şimşek kicks off a global investment roadshow at the G-20 summit in New Delhi on Friday, mainly to discuss the government's reforms.
He said he would then travel to New York and European economic powerhouses Germany and Britain and cities in Asia and the Middle East to meet with dozens of top chief executives.
"There will not be an investor that we are not in dialogue with," Şimşek said.
Erkan said the appetite for Turkish assets was high, and she expected strong investor interest in bonds.
Citing reported World Bank plans to double its exposure to Türkiye, Erkan said it reflects investor interest in the country's potential.
The World Bank announced on Thursday that it was looking to boost its commitment to Türkiye from $17 billion to $35 billion (TL 456.45 billion to TL 939.75 billion) over three years.
"We are determined to accompany Türkiye in the implementation of policies that will help its economy reach stability," Anadolu Agency (AA) quoted the bank's Türkiye program director, Humberto Lopez, as saying.
