‘Worst is behind us’: Finance chief Simsek predicts 60% drop in inflation in August

At the Turkish Industry and Business Association (TUSIAD) High Advisory Council meeting, Treasury and Finance Minister Mehmet Simsek provided an optimistic outlook on inflation, stating, “The worst is behind us.”

He predicted that inflation would decrease to around 60% next month and mentioned a target tolerance of 42% by the end of the year.

Economic growth and trade balance

Simsek emphasized sustainable growth as a key objective of the economic program. He noted the positive shift in net export contributions and the stability of domestic demand, pointing toward a promising growth trajectory for Türkiye.

Current account and fiscal discipline

Addressing the current account deficit, Simsek stressed the need for structural transformation to achieve sustainability. He assured that, excluding earthquake-related expenses, the deficit’s ratio to national income is a manageable 1.6%.

Strengthening fiscal discipline

Simsek highlighted the importance of reestablishing fiscal discipline. Reducing the deficit will empower the central bank in its fight against inflation. Measures have been taken to mitigate exchange rate risks and extend borrowing maturities.

Reserves and external financing

Türkiye has seen a significant improvement in its international reserves, with net reserves rising from a deficit of $61 billion to over $18 billion, excluding swaps. This turnaround, achieved in just one year, now totals approximately $80 billion. Moreover, the exchange rate-protected deposit scheme (KKM) has dropped below $60 billion, and further withdrawals are anticipated to accelerate in July.

Risk premium and external access

Simsek pointed out a dramatic reduction in Türkiye’s risk premium, with a 450-point decrease over the past year, outperforming similar countries. This has significantly improved access to external financing at reasonable costs.

Public confidence

The increase in reserves is largely attributed to public and corporate confidence in the economic program, with more than two-thirds of the transition from foreign currency to Turkish lira driven by this trust.

Minister Simsek concluded by reiterating that the most challenging phase of inflation is over, thanks to a coherent and robust economic program. He acknowledged the delayed impact of monetary policy on disinflation but remained confident in the path ahead.