Turkish Finance Minister Confirms Lira’s Strengthening Outlook
The Turkish Finance Minister has assured stakeholders that the lira is set to strengthen further, particularly after adjustments are made for inflation. He underscored that slowing price growth remains “the maximum priority.”
During a recent event in Istanbul, Minister Mohamed Shimakk stated, “You can rely on the continued high rate of the real exchange rate as long as the program achieves the desired results.” He highlighted the government’s and the central bank’s pivot towards more traditional monetary and financial policies, expressing confidence that positive outcomes have already been realized, with even more opportunities on the horizon.
Over the past year, the nominal value of the lira has depreciated by approximately 15%, reaching around 36 lira to the dollar. This decline is significant when compared to a high annual inflation rate of 41% recorded in January, primarily driven by the central bank’s interest rate increases.
Shimakk emphasized that the reduction of the inflation rate is “the real key” and indicated that the Central Bank is taking a stringent stance on personal loans to support this objective. He stated, “When it comes to consumption, which is essential to lowering inflation and current accountability, this is the field in which we deal very strictly. As for consumer credit, I believe that the central bank should continue to follow a solid policy in this field.”
In mid-2023, shortly after President Recep Tayyip Erdogan’s re-election, the central bank shifted from a highly accommodative monetary policy. The main interest rate was raised to 50%, effectively curbing the inflation that had peaked at 75% the previous May. Although policy easing began in December, the bank has already implemented 500 basis points of cuts.
Inflation slowed more than anticipated in January, despite a jump in monthly inflation figures. Nonetheless, investors largely expect that the central bank will continue its policy of reduction throughout the remainder of the year.