Off to a fresh start, Türkiye pledges to set up a strong team that will manage economic policies in the period ahead, as markets await Recep Tayyip Erdoğan, the winner of Sunday’s presidential runoff, to decide on a new cabinet.
As his rule extends into a third decade, Erdoğan is widely expected to embark on a broad cabinet reshuffle, potentially changing the finance and economy portfolios, as well as the central bank leadership.
The new cabinet, expected to be announced in the coming days, will comprise top policymaker picks that will constitute robust economy management, Vice President Fuat Oktay said Tuesday.
“Together with strong economic management in the new cabinet, this message will also be given to the whole society. This will be the top priority of our president,” Oktay told an interview with private broadcaster A Haber.
In his victory speech late Sunday, Erdoğan vowed to set up reputable finance management, as he termed inflation Türkiye’s most urgent issue after the vote.
Markets are trying to gauge whether the reelected president will change course or double down on policies centered around cheaper borrowing costs to combat rising prices and stimulate economic growth.
Erdoğan has given little indication of any U-turn in the coming weeks and months, having repeatedly stressed that he would remain committed to his low interest-rate economic blueprint.
He has insisted that inflation, which had hit a 24-year peak last year before easing, and the central bank’s benchmark policy rate would fall simultaneously.
Erdoğan on Tuesday reiterated the government's determination to safeguard households against high prices, aiming to bring the inflation rate down to single digits.
"We strictly adhere to our policy of not allowing our citizens to be oppressed by inflation," the president told an event in the capital Ankara.
"We were the ones who relieved our people by reducing the high inflation to single digits," he noted, stressing that "it will be us again" who achieve that.
The inflation has moderated over the last six months and eased to an annual 43.68% in April, almost halving from 85.51% in October.
Amid a great deal of speculation surrounding the new members of the cabinet, Erdoğan late Monday met with former finance chief Mehmet Şimşek, who is well respected by markets, according to media reports.
“The final decision related to finmin (finance minister) position is likely to provide some strong signals about economic policies in the new term,” said Ercan Ergüzel at Barclays, claiming there had been efforts to bring back Şimşek.
Türkiye has been coping with high inflation that has undermined the purchasing power of its citizens, as well as a steep depreciation in the Turkish lira.
It is also trying to emerge from the effects of devastating earthquakes that ripped through the country’s southeastern region in early February.
The rationale behind the government’s economic policy is to stimulate domestic demand, boost investment and consequently drive economic growth through cheaper lending programs. In addition, it insists that the program, unveiled in 2021, can help flip the country’s chronic current account deficits to a surplus.
In line with this approach, the Turkish central bank has aggressively reduced interest rates to ease borrowing costs for businesses and individuals and encourage spending. The policy rate, known as the one-week repo rate, was cut from 19% in mid-2021 to 9% by early 2023.
The monetary authority last cut the benchmark policy rate by another 50 basis points to provide stimulus after the catastrophic Feb. 6 tremors killed more than 50,000 people and caused extensive destruction across 11 provinces.
Erdoğan has repeatedly asserted that interest rates would decrease as long as he remains in power and guarantees that inflation will be controlled.
“The most urgent topic of the days ahead is to relieve the troubles resulting from the price rises caused by inflation and to make up for the losses in prosperity,” Erdoğan said in his victory speech in Ankara, predicting inflation would fall, just like interest rates had done.
Oktay echoed Erdoğan’s view and said the economy and measures sought to curb abnormal price increases would be prioritized in the coming period.
“If markets see the appointment of Şimşek or a similar orthodox figure soon, expectations for a quick return to orthodoxy would strengthen,” Ergüzel suggested.
Thomas Gillet, director of sovereign ratings at Scope Ratings, said a partial adjustment of the policy mix was still possible but would require consistent planning and implementation to be effective.
“However, President Erdoğan has given little indication of any such U-turn,” Gillet said.
