IMF: Turkey needs tighter policy to rein in inflation

ANKARA

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Turkey needs to put in place tighter monetary policy to bring inflation back to its 5 percent target in the medium term, the International Monetary Fund (IMF) stated on Feb. 2.

The IMF also said Turkey’s monetary policy framework needs to be improved to strengthen its effectiveness.

“Narrowing the interest rate band and providing all liquidity demanded by the market at a single policy rate will provide a clear signal on the policy stance,” IMF staff said in a statement following an official visit to Turkey that ended on Feb. 1.

The IMF praised Turkey’s higher-than-expected growth rates and falling current account deficit, but urged a strong need for structural reforms as a long-term solution to the country’s economic and financial vulnerabilities. 

“Domestic demand is expected to continue to drive growth this year, owing to the higher minimum wage, lower oil prices, and supportive monetary and fiscal policies. External financing needs will remain high, however, while weak capital inflows will put pressure on reserves and inflation will remain above target and increasing. In the short run, tighter fiscal and monetary policies can help address vulnerabilities. A longer term solution will require progress with the authorities’ ambitious structural reform agenda to boost potential growth and domestic saving,” said the IMF.