Economic program works, helping lower inflation, says Şimşek

ISTANBUL

The economic program the government is implementing is working and yielding results, Treasury and Finance Minister Mehmet Şimşek has said, noting that the monthly inflation is declining.

“This is a transition period. There is no reason to be pessimistic, but nobody should expect miracles either,” Şimşek told businesspeople at a gathering at the Istanbul Chamber of Industry (İTO), adding that the fight against inflation will take time.

Türkiye’s risk premium has fallen, and the exchange rate volatility is decreasing, Şimşek said.

“We are seeing the results on a monthly basis,” he added.

The annual inflation rate climbed from 61.98 in November to 64.77 percent in December, but the month-month increase, which hit as high as 9.49 percent in July last year, slowed from 3.28 percent to 2.93 percent.

“Inflation cannot resist ‘gravity’ anymore, it will eventually come down in the period ahead. There is no need to reinvent the wheel. We will lower inflation the same way the [U.S.] Fed, Brazil and Mexico reduced it.” he said.

Şimşek, however, stressed that the FX-protected account scheme, known as KKM, is a burden on the public sector. "KKM makes disinflation difficult. It disrupts monetary transmission mechanism."

The government introduced the KKM in late 2021, but the Central Bank started to rollback the scheme in August last year.

The most important priority of the medium-term economic program is price stability, Şimşek reiterated.

“Our focus is to anchor the next 12-month inflation.”

A survey by the Central Bank showed in January that the 12-month ahead inflation expectations declined from 41.23 percent to 39.1 percent, while participants of the survey forecast inflation to be 42.04 percent at the end of 2024.

Şimşek recalled that the budget deficit, excluding the earthquake-related spending, was 1.7 percent of the GDP, whereas it was around 5 percent for the developed countries.

“The earthquake is a temporary shock. This shock will be with us for a while, but it is temporary and not a permanent one. Thus, there is no need to worry about fiscal balances at this stage.”

The government took the necessary measures in July to compensate for the deterioration in the budget, Şimşek said, adding that thanks to those steps the budget deficit was well below the predictions.

“The budget deficit target last year was 6.4 percent [of GDP], but the actual deficit was around 5.4 percent, and almost two-thirds of this was due to the earthquake-related expenditures,” Şimşek said.