Turkish Finance Minister’s Optimism on Disinflation

By Ebru Tuncay

SAPANCA, Turkey (Reuters) – Turkish Finance Minister Mehmet Simsek stated on Friday that disinflation is expected to continue, despite recent setbacks in expectations. He reassured that the government still anticipates inflation to end the year within its target range.

Simsek’s comments followed a surprise move by the central bank, which raised interest rates by 350 basis points to 46%, reversing a brief easing cycle to reaffirm its commitment to combating inflation.

This decision was made after weeks of market disruptions caused by the arrest of Istanbul Mayor Ekrem Imamoglu, a key political opponent of President Tayyip Erdogan.

“The recent deterioration in expectations may have had some effect, but we believe we will stay within the target by year-end,” stated Simsek.

The unexpected rate hike was a pivot from the easing that started in December, intended to stabilize markets and anchor inflation expectations. While annual inflation decelerated to 38.1% in March, economists predict that the lira’s decline will influence inflation for April and May, with the central bank maintaining a year-end forecast of 24%.

Simsek asserted that the influence of exchange rate pass-through on inflation would remain constrained due to sluggish domestic demand and mentioned that recent financial market volatility could temporarily hinder economic activity.

“We are approaching a threshold where we can achieve moderate growth without generating a current account deficit,” he added.

The lira had previously dropped to an all-time low, impacting Turkish assets until the central bank intervened with reserve sales and stricter funding measures.

The central bank noted that the recent turbulence in markets may lead to a minor increase in April’s inflation figures and confirmed that tighter measures would be contemplated if inflation risks persist.