By Nevzat Devranoglu
GIRESUN, Turkey (Reuters) -Turkish Finance Minister Mehmet Simsek said he does not foresee Turkey changing its economic course following recent market and trade developments, and inflation would very likely hit the central bank’s forecast range by year-end.
Turkish annual consumer price inflation slowed to 38.1% in March, extending its fall from a peak of around 75% last May. The central bank’s year-end inflation mid-point estimate currently stands at 24%, in a forecast range of 19% to 29%.
However, lira-denominated investments have faced significant selling pressure following last month’s arrest of Istanbul Mayor Ekrem Imamoglu, President Tayyip Erdogan’s main rival. U.S. President Donald Trump’s imposition of tariffs has further complicated the economic picture.
“It is too early to analyse the permanent effects of recent developments in domestic financial markets and the global economy on our programme targets,” Simsek told reporters during a visit to the Black Sea province of Giresun.
“What is essential is the determined implementation of our programme. Our biggest priority is price stability, that is, a permanent decrease in inflation. We do not see any significant risk in this regard. In this context, we do not foresee any significant deviations in the programme at this stage,” he said.
“There is limited depreciation in the lira, we expect the exchange rate pass-through to be weak since demand conditions are not very strong. When we evaluate all these effects, the probability of inflation occurring within the central bank’s forecast range is extremely high.”
He said the net effect in terms of the current account balance may be positive. While there is a risk that protectionism in the form of trade wars may negatively affect global growth, the tightening of domestic financial conditions would limit imports.
“Therefore, we see a high probability of a current account deficit well below what we foresaw (2% of GDP) in the medium-term programme.”
Simsek said the clear message on the budget is that spending discipline will continue.
“Our aim with budget discipline is to support the disinflation process through a negative fiscal effect. Since tight financial conditions may have a limited negative effect on the budget, not from expenditure but from revenue, they will not be a significant concern for the programme.”
(Reporting by Nevzat Devranoglu; Editing by Daren Butler and Ros Russsell)
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