Türkiye's inflation may fall to as low as 40% in September, says finance minister

By Gokhan Ergocun

ISTANBUL (AA) — Türkiye is on the brink of disinflation, its treasury and finance minister said on Wednesday, adding that the country's annual inflation rate may go as low as 40% in September.

Speaking at an event in Istanbul, Mehmet Simsek said Türkiye has been implementing a disinflation program.

The country's annual inflation rate was at 69.8% in April, 68.5% in March and 67.7% in February.

Inflation is expected to peak in May before it starts declining, according to the country's Central Bank.

"That is why we called it a stability and prosperity program, because reforms are needed for permanent disinflation," Simsek stressed.

He added: "Our program is aimed at achieving price stability, fiscal discipline is aimed at supporting this, and a sustainable current account deficit is an outcome of this program."

Structural transformation is a measure to ensure permanent improvement, he said, noting that good communication, external integration and a better investment climate were in the program's focus.

Simsek also noted that sustainable growth and social welfare were the main goal of the program, while stressing the essentiality of price stability, which he said was the most important component of macrofinancial stability and predictability.

For countries that have experienced inflation shocks, bringing inflation down to low single digits requires time, determination and patience, he said.

"We are at the threshold of the disinflation process. First, it will fall rapidly due to the base effect," he explained adding that the reading would likely fall as low as 40% in September.

- No conflict between disinflation, growth

Simsek vowed that as part of the government's fiscal, they would "work closely with the Central Bank to keep the budget deficit at a lower level on the one hand, and to withdraw excess liquidity from the market if necessary, on the other."

While underlining that all policies come at a cost, he said there was no conflict between achieving disinflation and growth.

Though the measures may have side effects in the short term, he said, both Türkiye and the world needs reforms.

With credit growth slowing down as intended, monthly inflation has settled on a good path, despite some — albeit manageable — deviation in January and February that will get back on track, he added.

He said the ratio of the country's current account deficit to its gross domestic product would likely fall below 2.5% this year.

"Rebalancing is at the heart of our program, this means that domestic demand supports growth without causing imbalances, while net exports contribute positively to growth," he said.

Ankara will strengthen its human capital, noting that the era of artificial intelligence — a critical area for all countries — could cause some damage in this area, the Turkish minister of treasury and finance added.

He went on to say that Turkish banks obtained $4.1 billion in subordinated resources in 2024, adding that there were $60 billion of committed resources for Türkiye from lenders such as the World Bank over the next three years.

According to Simsek, the Central Bank's reserves excluding swaps will soon return to positive levels.

He also noted Türkiye's risk premium has dropped 440 points in a year, while the decline in developing countries was at 53 points.

- Global disinflation process

Simsek note that the global background influences the success of any program and that the world economy is currently experiencing relatively low growth.

For the second half of the year, he expects a significant recovery among Türkiye's trading partners, particularly in the EU, the Middle East, North Africa, and Asia.

He mentioned that during the disinflation process, domestic demand would slow down in Türkiye, making foreign demand crucial.

Globally, he emphasized, there has been successful disinflation and a successful soft landing. Although there are uncertainties about the final stages, it is expected that disinflation will continue and align with targets by 2025.

He also expects global financial conditions to ease further, which will be important as this could increase the flow of funds to countries like Türkiye.

While some commodity prices have risen, they are expected to stabilize, he added.

He said there are geopolitical tensions in the world, like wars, but the market doesn't pay much attention to this because it is assumed that these conflicts will not spread; so far it is a reasonable assumption.

Simsek acknowledged geopolitical tensions in parts of the world, such as wars, but noted that the market has largely ignored these conflicts, assuming they will not spread, adding that so far, this has turned out to be a reasonable assumption.