Turkey’s fiscal policy will play a crucial role in the country’s fight against inflation, central bank deputy governor Hatice Karahan told Reuters during an interview.
The central bank, which has held the policy rate at 50 percent since March, saw inflation drop below 52 percent in August following a peak of 75 percent in May.
The government is set to unveil a medium-term economic program (MTP) later this week, expected to outline fiscal measures aimed at supporting the disinflation process. Deputy Governor Karahan emphasized the importance of fiscal support to ensure inflation continues to decline.
Analysts see the upcoming program as a test of Turkey’s commitment to combating inflation through fiscal tightening and structural reforms.
The central bank forecasts inflation slowing to 38 percent by the end of 2024, with a further reduction to 14 percent by 2025 and 9 percent by 2026. The MTP is also expected to revise the budget deficit-to-GDP ratio, which could be set at 5 percent or slightly lower for this year.
Turkey’s economic growth slowed to 2.5 percent in the second quarter, adding pressure on policymakers to balance inflation control with growth.
The government has already introduced some fiscal tightening measures to address the current account deficit and rebuild reserves. The MTP is expected to focus on price stability, reinforcing fiscal discipline and laying out a roadmap for future structural reforms.