Speaking in a broadcast he attended on the A MONEY channel, Treasury and Finance Minister Mehmet Şimşek stated that they completed the transition period in inflation in June and said, “We are very determined to reduce inflation.”
Minister Şimşek said that the disinflation process is not easy.
BLACK MONDAY IN THE MARKETS DUE TO JAPAN
Minister Şimşek, who also commented on the sharp sales experienced in the markets yesterday, said, “Markets have started to price in the Fed’s interest rate cuts much more and faster, therefore, the easing of global financial conditions in light of developments is again in favor of developing countries like Turkey, because it may affect the flow of funds.” Minister Şimşek said, “We have closely followed the turmoil centered in Japan, because we are a developing country and developments in risk appetite affect us. We have our own story, we are less affected in adverse conditions.”
Minister Şimşek’s statements are as follows;
“If there is a slowdown in global growth, it will negatively affect risk appetite and us, but it will also bring down oil and commodity prices, so the decline in oil prices will positively affect us through the current account deficit and inflation channel.
We have our story, we are less affected by negative conditions. There is a reform and stability program that we shared at the beginning of September last year, the biggest priority of this program is to save our nation from the cost of living. We see inflation as a very bad tax, especially for those with fixed incomes, we see it as a macroeconomic problem that disrupts income distribution, the essence of our program is disinflation, to permanently reduce it to single digits. We finished the transition period in June, annual inflation started to fall as of June, the fall in July was quite strong, this will continue in August.
Inflation will continue in the coming months, although not at the same rate. In May, inflation peaked at just over 75 percent, and fell to around 62 percent in July. We value expectations, but as the gap between our performance and our targets narrows and we get closer to our targets, there is a high probability that expectations will also converge.
We are very determined to reduce inflation, we will eliminate the problems our nation is currently facing, we will see the first relief in 2025. 2025 will be a year of disinflation, therefore our nation will see the results, it will be worth the troubles we have endured. We said it will be difficult, because the disinflation program is not easy and takes time. Inflation will decrease, because monetary, fiscal and income policies were designed accordingly, we need time and patience.
The CBRT has a target path, there is a band, since predictability is not very high, range estimates are made instead of point estimates. The upper part of the target band for 2024 is 42 percent, as of now, we believe that the course of inflation is in line with our predictions, and that we will close the year with 40 percent. In October, the inflation expectation for the 24 months ahead was 25 percent, today it is around 19 percent, as the program works, succeeds and yields results, credibility and expectations improve. If the crisis in the Middle East grows, of course it will negatively affect us, let’s be realistic, we will be negatively affected by tourism, oil prices, risk premium channels, if there was no tension, our current deficit would be below or close to 1.5 percent, we care about these developments, we are following them closely.
When looking at the annual price increases in energy, we made it compatible with the inflation path in 2024, we also consulted with the TCMB, they knew our path a year in advance, there is no surprise here. We have no concerns about meeting the year-end inflation targets.
TURKEY’S CREDIT RATING
A two-notch credit rating increase is not normal, it is an exception, Moody’s has upgraded Turkey twice for the first time. Turkey is the only country whose credit rating has been upgraded by all three credit agencies (Fitch, S&P and Moody’s) within 2024, and the outlook is positive. The market makes some assessments when pricing our assets, they evaluate one notch above the current credit rating, the “investment-grade country” status takes time. Budget discipline is now in our DNA. Inflation is very high, we need to reduce inflation, the current account deficit is historically high, we need to bring it to a sustainable point permanently, and this requires structural reform.
It takes some time for direct investments to revive, by implementing the program it has become an important attractive place for direct investments, Turkey is a big economy.
Turkey is a significant center of attraction, the average annual real growth rate in the last 100 years has been around 4.8 percent, the average growth rate in the last 20 years has been 5.5 percent, our growth performance is very good compared to developing country averages. When you invest in a country, you look at the size of the market, its growth performance, its potential, infrastructure, energy, transportation problems, communication infrastructure, Turkey has a great advantage here as well. We are better than 92 countries similar to us in infrastructure, because the issue our President prioritizes is infrastructure. What remains is macrofinancial predictability, we are implementing a determined program for macrofinancial stability, reform is a must in every field. Reform in every field, in the field of law, in every field, to make an effort to improve.
MEDIUM TERM PROGRAM
The OVP is a 3-year program, it is renewed every year, because every year we need to prepare a guide for the private sector and a binding roadmap for the public. It includes steps that will ensure macro financial stability. We have no hesitation about inflation, because our biggest priority is to reduce inflation and save low-income groups, minimum wage earners, retirees, civil servants, all segments of society from inflation problems, this is our biggest priority, we will not step back, we do not plan to change the targets, we are determined on this issue. We will closely monitor our income performance in the second half of the year. The current account deficit will be much better than we anticipated. We have achieved much more tremendously in terms of reserve accumulation than we anticipated, we increased from around -60 billion to around +24 billion dollars, we are talking about an improvement of over 90 billion dollars.
We are in a better position than our program projections in terms of exiting the KKM. We are close to the inflation target, we will achieve it, there is no significant deviation from the targets. But we cannot be complacent, we are just at the beginning of the program, we can never, ever relax until inflation drops to single digits. The program requires continuity and determination, I find the determination and patience of our President very valuable, because there is pressure from many segments, his determination is very valuable, and we will get results.
TAX AUDITS
The program requires continuity and determination, I find the determination and patience of our President very valuable, because there is pressure from many segments, his determination is very valuable, and we will get results. Financial audits will continue to intensify and increase in every sector. We have no other choice but to fight against informality, instead of increasing tax rates, we will increase the dose in the fight against informality, we will do our best to collect taxes from those who earn a lot and those who are informal. The goal is justice and efficiency in tax, informality is the greatest injustice. Informality means low efficiency, low scale, discredit, unfair competition, the issue we will address with the greatest passion is informality, we need to fix the budget.”
