Government officials and business leaders on Tuesday agreed on the need for a patient and persistent approach to combat Türkiye’s chronic high inflation, the country’s vice president said.
Türkiye’s annual inflation subsequently eased to as low as 38.21% in June but rose again to nearly 48% last month due to the Turkish lira’s decline and various tax hikes.
Speaking after the Economy and Consultation Meeting, Vice President Cevdet Yılmaz said the government’s eventual goal is to bring the inflation down to single digits.
Last month, the country’s central bank doubled its year-end inflation forecast to 58% and vowed to continue gradual monetary tightening. The end-2024 inflation prediction has been raised to 33% from 8.8%. The forecast for the end of 2025 stands at 15%.
Yılmaz said they have embraced a perspective to “lower inflation to single digits by 2026.”
Since June, the central bank has hiked its policy rate to 17.5% from 8.5% and pledged further tightening to fight inflation, while the government has introduced tax and fee hikes to boost budget income.
The tightening drive marked a reversal from an easing drive that saw the central bank cut its official borrowing costs to 8.5% from 19% since 2021. The easing trend saw inflation peak at a 24-year high of 85.5% in October last year.
The monetary policy reversal came after President Recep Tayyip Erdoğan’s victory in the May elections, after which he named a new Cabinet to undertake the economic U-turn.
The government is expected to update its economic forecasts for the next three years when it announces its new medium-term program (MTP) in September.
Yılmaz said it was important to limit government spending and that the government’s fresh MTP will include structural reforms, with more flexible policies planned for companies to finance exports and production.
The MTP will consist of three legs, Yılmaz said, spearheaded by structural transformations.
“There is a general framework of monetary policy. The details are at the disposal of the central bank. There are details about fiscal policy in the MTP. And, of course, it will also include structural transformations as the third leg,” he noted.
The foreseen changes and transformations will be aimed at increasing competitiveness, boosting productivity and putting Türkiye in a more advantageous position in the world, Yılmaz added.
“It will cover many areas, from tax reform to transformations in education. It will cover all kinds of fundamental changes in the field of law, especially those related to the economy, aimed at improving the investment environment, improving efficiency, competitiveness and the potential of the economy,” he explained.
Yılmaz hinted at a potential overhaul in the country’s tax system, stressing the business world’s demand for a reduction in indirect taxes.
“Increasing direct taxes and reducing indirect taxes is a common demand of both the labor segment and the employer segment,” said the official. “I support this too. In the coming period, some studies in this direction should be carried out,” he said.
