The Turkish government will effectively use all financial instruments at its disposal in its fight against soaring consumer prices, the treasury and finance minister said Friday, stressing that the country would eventually "beat" inflation permanently.
"Inflation and soaring prices are not only Türkiye’s issue. It is the whole world’s problem. It is not only a problem of the developing world but also a problem of the developed world," Treasury and Finance Minister Nureddin Nebati said in his address at the Uludağ Economy Summit 2022 in northwestern Sakarya province.
"In our fight against inflation, we will use all the tools of economic policy in the most effective way, taking into account the current conditions. We will defeat inflation in our country permanently together again," Nebati said.
Countries worldwide have been grappling with an increase in food and fuel prices stoked by the COVID-19 pandemic and Russia’s invasion of Ukraine, and Türkiye is known to be particularly vulnerable due to its external energy dependence.
Türkiye’s annual inflation rose 83.45% in September, official data showed Monday, up from 80.2% in August. It marks the highest annual figure seen in July 1998, when it stood at 85.3%.
"We have by no means ruled out rapidly implementing policies that will protect our citizens against rising inflation and the cost of living," Nebati said.
The government has introduced several relief measures to help cushion the blow from rising inflation, including increasing the minimum wage in December and in July, announcing a 25% cap on rent increases and reducing taxes on utility bills. It also has announced a major housing project for low-income families.
Nebati said orthodox policies were "being questioned" and added that Türkiye has followed ones that prioritized growth as they kept in mind the current global conditions.
The government says inflation will fall and the Turkish lira will stabilize with its economic program, dubbed Türkiye Economy Model, prioritizing low interest rates to boost production and exports in a bid to achieve a current account surplus – Türkiye’s transactions with the rest of the world.
The Turkish central bank surprised markets as it cut its policy rate by 200 basis points to 12% in the last two months. The bank had embarked on a rate-cutting cycle more than a year ago as it lowered its one-week repo rate by 500 basis points to 14%, where it had left it steady in the first seven months of this year.
Known for his opposition to higher interest rates, President Recep Tayyip Erdoğan last week reiterated his stance on high borrowing costs and said he had advised the central bank to lower its key policy rate further at its upcoming meetings.
Nebati also said that the world is going through a dilemma with economic policies. "The narrative conflicts will soon be on the agenda of the whole world. Will inflation be in the focus or growth? What about unemployment?"
"The world is experiencing a contraction, we are growing. The world is growing with single digits, while we are growing with double digits. Unemployment is increasing globally, we are creating jobs," Nebati said.
The Turkish economy expanded by a better-than-expected 7.6% year-over-year in the second quarter on strong domestic demand and exports. The rate made Türkiye the second-fastest growing economy in the G-20.
The country’s GDP had expanded by 7.5% annually in the second quarter. Last year, the economy bounced back strongly from the COVID-19 pandemic and grew by 11.4%, its highest rate in a decade.
Nebati said the ruling Justice and Development Party (AK Party) "has been the only address of stability in all realms."
"The AK Party has managed to lower high inflation that none of the governments before were able to do and succeeded in bringing down the high inflation in the first quarter of the 21st century," he noted.
"The AK Party was able to bring down the inflation previously and it will be us again who will do that again," Nebati said.