Amid the ongoing battle against stubborn inflation, Türkiye’s top economy officials on Friday emphasized the necessity of simultaneously maintaining production and exports, which they say will be crucial in preventing a potential slip into recession.
"While fighting inflation we are making an effort to sustain production and exports so as not to fall into recession. We must do both at the same time," Vice President Cevdet Yılmaz told reporters after meeting bankers in Istanbul.
Further underscoring the government's determination, Treasury and Finance Minister Mehmet Şimşek stressed consolidation of macro-financial stability as the administration’s top priority in the coming period.
Şimşek added that they are moving toward a rationalization in monetary policy for this purpose.
“For sustainable high growth, investment, employment, production and export cycles must be prioritized. We are extremely committed to this issue,” he told an event in the southeastern Batman province.
"Our tax, credit, and incentive policies will be shaped accordingly," Şimşek affirmed.
Since the May elections, President Recep Tayyip Erdoğan's government orchestrated a U-turn away from policies based on interest rate cuts that had been accompanied by a steep fall in the Turkish lira and soaring inflation.
Since June, the country’s central bank has reversed and hiked its policy rate by 900 basis points to address inflation, which leaped to a 25-year high above 85% last year but subsequently eased to as low as 38.21% in June.
It rose again to nearly 48% last month due to the lira’s decline and various tax hikes and officials have acknowledged it would rise further toward the year-end.
Erdoğan said after a Cabinet meeting this week that the government would lower inflation to single digits but will not sacrifice economic growth and employment, comments which were echoed by Yılmaz on Friday.
The vice president stressed Türkiye must sustain its push on production and exports to prevent the economy from falling into recession even as it fights inflation.
“We need to follow the right policies with patience,” Yılmaz said.
Last month, the central bank doubled its year-end inflation forecast to 58% and vowed to continue gradual monetary tightening. The end-2024 inflation prediction has been raised to 33% from 8.8%. The forecast for the end of 2025 stands at 15%.
Separately on Thursday, Şimşek said Türkiye aims to lower soaring inflation permanently after a transitional period where prices remain high.
"As you can see from the central bank's projections, inflation will continue to rise temporarily due to certain factors in the coming months," the minister said.
In the meeting with the finance sector, the issue of new financial instruments came onto the agenda with sector representatives having spoken of difficulties in financing long-term projects given the short-term deposits in the sector, Yılmaz said.
He also underscored that the meeting also addressed the issue of encouraging first-time house buyers, adding that the central bank and regulator were working on the issue and that the housing supply needed to be increased.
Yılmaz said the government's new medium-term program (MTP), setting out its economic plans in detail, would be announced in the first half of September.
Şimşek said the MTP will feature key structural reforms and will serve as a “crucial” guide and road map for both the private and public sectors.
He further stated that Türkiye’s budgetary balances were being shaped according to specified criteria. Simultaneously, he said fiscal discipline was reinstated and stressed efforts to drive inflation down to single digits through monetary policy adjustments.
All these will be supported by structural reforms that are on the agenda, Şimşek said. “We have one goal, to create added value to our country, to create employment, to export,” the minister explained.
“The central bank has already shared its inflation policy. Starting from 2024 and beyond, we will shape our monetary, fiscal and revenue policies within this framework,” Şimşek noted. “Hence, we will utilize all policy instruments to once again reduce inflation to single digits.”
Achieving price stability would increase Türkiye’s economic growth, the minister said.
"By ensuring price stability and enhancing our growth, we can accelerate Türkiye's progress in closing the gap with developed nations."
