Ana sayfa English Edition Global economies accept that inflation will persist

Global economies accept that inflation will persist

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At a time when world economies increasingly accept that high inflation is a reality and take measures to reign it in, Turkey shies away from taking steps to fight the growing inflation rate

Business circles in the country have been increasingly voicing concern that the government policies currently being implemented are not positively helping the situation. Orhan Turan, the president of the Turkish Industry and Business Association (TÜSİAD), in recent remarks stated that the Central Bank’s low interest rate policy wasn’t resonating with the economy, adding that the high inflation rate was undermining the country’s welfare, noting that Turkey’s failure to fight inflation was not recent, but has been in palace for the past five to six years. shies shies shies shies

Inflation and current account gap likely to grow
The increasing cost of food, commodities and power has led the markets to conclude that both the inflation rate and the current account deficit will continue to soar. Turkey seriously needs to bulk up its reserves and over the next year, the country has to pay back 171 billion dollars in foreign debt. In January, the government mandated exporters to sell 25% of their foreign currency revenues to the Central Bank to beef up its reserves. In April, this percentage was increased to 40 percent. The sale of foreign currency will be conducted according to the Central Bank’s exchange rate –as is the case with setting the price for exports– and the currency purchase will be paid back to sellers in lira. A percentage of the amount of foreign currency income earned this way will be added to the bank’s reserves. shies

Loans remain below the inflation rate
With diminishing purchasing power, Turkish citizens are increasingly relying on credit cards and consumer loans to get by. Consumers try to purchase their goods and services they know they will need in the future as soon as possible, fearing that in the future, the price of those goods will also increase. This has led to a revival in the domestic market, indicating that growth over the period ahead might be achieved through loans.

Nebati: We will continue to work at full speed
A serious amount of foreign investment and capital has left Turkey since the past year. Recently, Treasury and Finance Minister Nureddin Nebati was in the US, where he held a series of meetings with portfolio investors and talks with his counterparts from several countries and executives of international organizations. In Washington, Nebati also attended the meeting of G20 finance ministers and central bank governors as well as the International Monetary Fund (IMF) and World Bank spring meetings. In later remarks, said: ”We worked to our maximum capacity, and we will continue to do so, to fortify the strong stance Turkey has displayed in every field; on international platforms and to represent our country in the best way it deserves.” Whether these meetings will bring back foreign investors remains to be seen.

CB leaves rate unchanged – again!
The Central Bank of Turkey kept the policy rate constant at 14%, in April’s monetary policy meeting. In a statement, the bank pointed out that rising energy costs resulting from geopolitical developments, temporary effects of pricing formation and strong negative supply shocks have pushed the inflation upward. Economists on the other hand, believe that the Central Bank will not implement a rate policy geared towards decreasing the inflation rate, and will fail to take the steps that could instill confidence in the market.
As the economic conditions get tougher around the world, the war in Ukraine continues with little hope for successful peace negotiations any time soon. Higher risks emerging in the global markets, Turkey’s economy policies standing out from the policies implemented by the rest of the world are delaying positive developments expected to occur in the economy.