Simsek: Investors monitor Turkey's economic measures in wait-and-see mode
Investors evaluating investment prospects in Turkey are closely monitoring the continuity of the new economic measures as they remain in a "wait-and-see" mode, according to Turkish Finance Minister Mehmet Simsek.
In an interview on Thursday with Turkey’s Yenu Safak newspaper, Simsek emphasized the importance of adhering to global standards and rule-based policies to ensure a steady flow of resources into Turkey.
"We are confident that if we pursue policies in line with international norms, Turkey will not face any issues in terms of resource inflows. During our discussions, we have certainly witnessed potential. Investors are in a bit of a wait-and-see mode, believing that correct steps have been taken. The question is whether these positive trends will continue," Simsek stated.
Simsek's comments come as Turkey endeavors to stabilize its economy and reduce the persistently high inflation that has been exacerbated by a weakened lira and increased taxes. President Tayyip Erdogan's newly appointed Finance Minister, Simsek, along with the central bank's chief, have orchestrated a policy shift involving interest rate hikes and other measures aimed at curbing domestic demand.
The ongoing monetary tightening, a departure from the previous strategy of aggressive rate cuts, is anticipated to bring down inflation to manageable levels by mid-2024. However, the current measures have caused the national currency to suffer, prompting authorities to call for patience from citizens already dealing with economic challenges.
"In accordance with the central bank's forecasts, inflation is expected to rise temporarily due to specific factors in the upcoming months," Simsek explained. "We have implemented certain tax adjustments to improve our budget balance and address the aftermath of recent events, which do contribute to inflation. Yet, it's important to note that these changes are one-off and will not be recurring."
Under the leadership of the new central bank governor, Hafize Gaye Erkan, Turkey has raised its key interest rate by 900 basis points, bringing it to 17.5% since June. Although the pace of tightening fell slightly short of market expectations, the bank recently revised its year-end inflation projection to 58%, aligning with market forecasts.
Having peaked at a 24-year high of 85.5% in October last year, inflation eased somewhat due to currency stabilization and the so-called base effect. However, it surged again in July to nearly 48%.
Simsek emphasized the importance of increasing the predictability of economic policies to attract foreign investments. "As uncertainty diminishes and the current account deficit narrows over the upcoming period, we anticipate increased capital inflows into Turkey. I am confident that we are heading towards greater exchange rate stability, which will also positively impact the inflation outlook."
Moreover, Simsek expressed optimism regarding Turkey's discussions with Gulf countries last month, foreseeing productive outcomes in terms of investments this year.