Şimşek pledges to sustain inflation fight

ISTANBUL

Treasury and Finance Minister Mehmet Şimşek

Treasury and Finance Minister Mehmet Şimşek has stated Türkiye will stick to its disinflation program despite slower progress, estimating that the war in Iran left inflation at least seven percentage points higher than it otherwise would have been.

“We will not abandon disinflation during the election period,” Şimşek said in a joint Bloomberg HT-Habertürk interview on Sept. 16.

“We need disinflation for sustainable growth.”

He said the war had raised prices across commodities, extending its impact beyond oil and natural gas.

Without the conflict, inflation would have ended this year at around 20–22 percent, he estimated, acknowledging that disinflation could take longer than initially planned.

Annual inflation stood at 31.51 percent in August. The government’s 2027–2029 Medium-Term Program forecasts a year-end rate of 28.4 percent.

Şimşek said inflation was proving more persistent than models had predicted because rents, education fees and wages remained closely tied to past price increases.

Monetary policy had been more effective in slowing goods inflation, although services were also beginning to respond.

Describing the cost of living as the government’s top priority, he said public-sector pay and pension payments would rise by at least the rate of inflation.

On exchange rate policy, Şimşek said a floating currency remained the preferred system, but conditions did not yet allow greater flexibility.

Strong demand for the lira could cause it to appreciate excessively without intervention, he said, adding that a more flexible regime could be considered once inflation reached single digits.

Turning to public finances, he forecast a budget deficit of 3.1 percent of gross domestic product this year, below the original 3.5 percent target, despite revenue forgone through fuel tax relief.

Şimşek described the budget as the most binding element of the Medium-Term Program because it was largely under government control.

He also cited the exit from exchange rate-protected deposits and stronger reserves as achievements of the program.

He forecast economic growth of 3.3 percent this year, acknowledging that the program had contributed to slower growth but saying external conditions were also weighing on activity.

Net exports were the only component subtracting from growth, he said.

For manufacturers, Şimşek said a working capital support program that began this year with 250 billion Turkish Liras could be expanded.

He also pointed to a separate 750 billion lira investment loan program offering 10-year financing for selected manufacturing investments.

“We are trying to ease the pressure on businesses through selective and targeted policies,” he said, adding that support should not undermine the broader monetary policy stance.

On taxation, Şimşek said the government did not plan to extend its fuel tax relief into 2027, although support for diesel would continue until the end of this year.

The mechanism cushions increases in pump prices by reducing excise duties.

He said next year’s projected increase in tax revenue reflected economic growth, the assumed end of fuel tax relief and efforts to bring undeclared economic activity into the tax system.