By Ebru Tuncay
ISTANBUL, Jan 9 (Reuters) – Turkey is committed to carrying on its tight economic policies in order to cool inflation, and though it may fine-tune the programme it will not change course, Vice President Cevdet Yilmaz said in comments embargoed to Friday.
“There is no plan to pause our programme,” Yilmaz said at a briefing with reporters in Istanbul on Thursday. “All programmes are dynamic, and adjustments can always be made.”
Yilmaz, who plays a key role overseeing economic policy at the presidency, said any such adjustments would aim to support production, investment and exports while moderating consumption.
Turkey has pursued tight monetary and fiscal policies for more than two years in order to reduce price pressure, leading to high financing and borrowing costs that have weighed on businesses and households. Inflation has eased slowly but steadily over the last year but remains elevated at 31% annually.
Last month, Is Bank CEO Hakan Aran warned that focusing solely on one target – inflation – could create side effects, suggesting a “pause and restart” might be healthy once the programme achieves certain targets.
Yılmaz said the government expects improvements in inflation in the first quarter, which should reflect to market expectations for year-end inflation around 23%.
The government projects inflation to dip as far as 16% by year end, within a 13-19% range, and falling to 9% in 2027. The central bank forecasts inflation between 13-19% by end-2026.
Yilmaz noted inflation fell by nearly 45 points despite pressure from elevated food prices, hit by agricultural frost and drought.
The agricultural sector is expected to support growth and help ease price rises this year, which could help achieve official inflation targets, he said.
Yilmaz said the government wants to avoid a rapid drop in inflation that could hurt economic growth, jobs and social stability.
Turkey’s economic programme was established in 2023 after years of unorthodox easy money that aimed to stoke growth but that sent inflation soaring and the lira plunging. The programme aims to dislodge high inflation expectations while boosting production and exports, in order to address long-standing current account deficits.
The central bank, having raised interest rates as high as 50% in 2024, eased policy through most of last year, bringing the key rate down to 38%.
Asked whether lower rates could trigger an exit from the lira currency, Yilmaz said: “What matters is real interest rates. Lowering rates as inflation falls does not affect real rates, so we do not expect such an impact.”
He added that the government will strengthen mechanisms that selectively support companies while improving overall financial conditions.
(Reporting by Ebru Tuncay; Writing by Ezgi Erkoyun; Editing by Jonathan Spicer)
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