In a recent televised speech to Turkish exporters, President Recep Tayyip Erdogan announced that his new economic team’s top priority would be to bring down the country’s inflation rate from its current staggering level of around 40% to single digits. Erdogan expressed confidence in his government’s strengthened position following the elections, signaling a determination to address the pressing issue of inflation.
Erdogan acknowledged the significant impact of ultra-low interest rates on inflation and the subsequent negative consequences, such as substantial outflows of foreign bond and stock investors. To maintain currency stability, Turkey’s central bank has almost exhausted its reserves. The Turkish lira has suffered a decline of more than 20% against the US dollar since the beginning of the year.
With the appointment of Mehmet Simsek as the new Treasury and Finance Minister and Hafize Gaye Erkan as the central bank Governor, investors are eagerly awaiting signs of a departure from Erdogan’s unorthodox economic policies. These policies include behind-the-scenes interventions aimed at bolstering the lira and keeping interest rates below the inflation rate.
The central bank’s upcoming interest rate setting meeting on June 22 has heightened expectations of potential policy changes under the new economic team. The market is watching closely to see if Simsek and Erkan will adopt more conventional approaches to address the country’s economic challenges and restore investor confidence.
President Erdogan also provided an update on the country’s economic recovery, emphasizing its resilience following the devastating earthquakes that struck in February. The government’s efforts, coupled with the nation’s newfound stability, have contributed to a strong rebound. By shifting the focus towards reducing inflation and adopting orthodox policies, Erdogan’s economic team aims to instill confidence among both domestic and international investors. This renewed approach, coupled with the country’s robust recovery from recent natural disasters, sets the stage for a potentially brighter economic future for Turkey.