Central Bank has a free hand, says Finance Minister Şimşek

ANKARA

Türkiye’s Central Bank has a ‘free hand’ and policymakers at the bank will do what is necessary to reduce inflation, Treasury and Finance Minister Mehmet Şimşek has said.

The essence of the economic program is disinflation, to bring inflation to single digits, Şimşek said in an interview with private broadcaster Kanal 7.

The program has the support of President Recep Tayyip Erdoğan, and it is a rule-based program, the minister added.

“The foundation of the program, which is political stability, is solid.”

The program was designed to bring inflation back to single-digits and includes the normalization of the monetary policy, Şimşek said.

“We will channel the resources toward production, export and [creating] employment not toward consumption. And we will do this through loan policies. We will take additional measures, if necessary,” the minister stressed.

Şimşek reiterated that there will be no tax increases this year, noting that the tax hikes last year were to mitigate the effects of the devastating earthquakes on the budget.

“The tax increases last year adversely affected inflation. This won’t happen this year… We will not increase the value added tax, we will not increase the corporate tax,” he said.

Annual inflation will start to decline in the second half of the year, but the monthly decline has already begun, the minister added.

The annual inflation rate quickened from 64.86 percent in January to 67.07 percent in February, according to the latest official data.

The monthly increase in consumer prices, however, slowed from 6.7 percent to 4.53 percent.

The minister voiced confidence in the team at the Central Bank, noting that the current governor Fatih Karahan worked at the U.S. Fed for 10 years. Karahan took the helm of the bank in early January replacing Hafize Gaye Erkan.

“They [the Central Bank team] are doing their job and they will do what the conditions require.”

The Central Bank’s Monetary Policy Committee will meet on March 21 to decide about the interest rates. Last month, the bank held its policy rate steady at 45 percent, pausing after eight straight increases.

Economists widely expect the Central Bank to keep the rate unchanged this week.

Şimşek reiterated that they do not have an exchange rate target, but the Central Bank may move into to prevent excessive volatility in the rate which can put price stability at risk.

He also stressed that Türkiye has easy access to foreign financing.

“In the first five months of last year portfolio outflows were $2.9 billion. There has been a net portfolio inflow of $12.4 billion between June 2023 and February 2024,” Şimşek said.