Turkey’s economic team holds investor meeting after policy U-turn.

Turkey's economic team holds investor meeting after policy U-turn.

Turkish Economy

Turkey’s Economic Team Vows to Tackle Inflation and Promote Growth

ISTANBUL – In a bold and unprecedented move, Turkey’s newly formed economic team recently met with over 40 international investors to discuss their strategies for stabilizing the Turkish economy. The meeting, which lasted an impressive eight hours, served as a platform for Finance Minister Mehmet Simsek and Central Bank Governor Hafize Gaye Erkan to outline their plans for monetary and fiscal policies amidst an economic slowdown and soaring inflation.

The face-to-face interaction with investors represents a significant departure from previous practices and underscores the government’s commitment to transparency and open dialogue. This meeting comes two months after President Tayyip Erdogan appointed Simsek and Erkan, signaling a shift towards more orthodox economic policies.

During the meeting, Minister Simsek emphasized the importance of tackling inflation as a top priority. He confidently assured investors that President Erdogan fully supported the ongoing monetary tightening measures, which included gradual increases in interest rates. While these measures may lead to slightly slower economic growth, they are crucial to curbing inflation without causing a sudden stop in economic activity.

Under the leadership of Governor Erkan, the Central Bank has already raised interest rates by an impressive 900 basis points since June, bringing the key rate to 17.5%. Although the pace of tightening was slower than anticipated by the market, the bank’s recent doubling of its year-end inflation forecast to 58% did meet market expectations.

The need for such significant tightening measures stems from previous unorthodox policies that were in line with President Erdogan’s belief that high-interest rates fuel inflation. These policies, however, led to a currency crisis and a significant devaluation of the Turkish lira. In 2021 alone, the lira weakened by 44%. This trend continued in 2022, with a 30% depreciation, and has shown no signs of improvement this year.

Having reached a peak of 85.5% in October last year, inflation seemed to ease momentarily before experiencing a sharp uptick in July, soaring to nearly 48%. These troubling figures highlight the urgency of the government’s efforts to combat inflation and stabilize the Turkish economy.

The meeting, reportedly hosted by Wall Street bank JPMorgan, brought together various esteemed speakers, in addition to Minister Simsek and Governor Erkan. Burak Daglioglu, head of the presidency’s investment office, delivered a presentation highlighting Turkey as a resilient investment partner. Other notable speakers included Vice President Cevdet Yilmaz, Ziraat Bank CEO and Turkish Banking Association head Alpaslan Cakar, and the heads of Turkey’s wealth fund and treasury debt office.

Foreign investors have shown cautious optimism towards the economic situation in Turkey since President Erdogan’s re-election and the subsequent shift in economic policies. However, the lack of regular meetings with the central bank has been a cause for concern. With Governor Erkan’s delivery of the quarterly inflation report proving successful, investors welcome the prospect of more frequent and open communication between the government and investors.

This meeting signifies a pivotal step in Turkey’s ongoing journey towards economic stability and growth. By engaging with international investors and demonstrating their commitment to orthodox economic policies, the Turkish economic team aims to restore confidence and attract much-needed investment to fuel economic recovery.