Türkiye to maintain disinflation policies, officials say

ISTANBUL

Türkiye’s economic program remains on track despite recent geopolitical and energy-related shocks, with fiscal and monetary policies set to continue supporting disinflation, Treasury and Finance Minister Mehmet Şimsek and Central Bank Governor Fatih Karahan said.

Speaking at the 69th General Assembly of the Banks Association of Türkiye at the Istanbul Finance Center on June 12, Şimşek said price stability remained the government’s main priority.

“Despite shocks, what matters is progress. What matters to us is the direction of travel,” Şimşek said.

“With a delay of a few months, the disinflation process will continue again and get back on track,” he added.

Şimşek said there was no concern over fiscal discipline despite earthquake-related spending, arguing that Türkiye had a stronger fiscal position than many comparable economies.

Türkiye’s budget deficit target stands at 3.5 percent of gross domestic product, but actual performance will “very likely” be better than that, he said.

The minister also said the current account deficit, long viewed as one of Türkiye’s main vulnerabilities, was now manageable.

“We may close the year with a current account deficit of 3 percent or below,” Şimşek said.

He said the deterioration in the annual foreign trade deficit since December had remained below $1.5 billion despite the oil shock, while tourism and other key areas had not seen major deterioration.

Şimşek said Türkiye’s gross external financing need was expected to stand at around 17 percent of GDP this year, below its long-term average of around 20 percent.

He also said there was “no room for concern” over reserves, noting that nearly 40 percent of the recent reserve decline after the war stemmed from changes in gold prices.

Central Bank Governor Fatih Karahan said the bank would continue to use all policy tools to protect price stability and financial stability.

Karahan said geopolitical developments and energy market volatility had created short-term risks for inflation and the external balance, but added that they were not expected to reverse the disinflation process if the right policy steps were maintained.

“At the point we have reached today, we assess that the necessary conditions for the continuation of the disinflation process have been preserved thanks to our policy tools, strong reserve position and macroeconomic rebalancing,” Karahan said.

He said the central bank’s tight monetary policy stance would continue, with future decisions taking into account the impact of geopolitical developments on costs, economic activity and expectations.

Karahan said rebalancing in domestic demand, a healthy current account outlook and a strong reserve position supported the disinflation process.

“The path to healthy and sustainable growth in the banking sector runs through low and stable inflation,” he said.

Karahan also said Turkish markets continued to function properly during periods of increased global volatility, while long-term external financing inflows confirmed the resilience of the banking sector.