(Bloomberg) -- Turkey’s Finance Minister Mehmet Simsek told investors at a meeting in New York that tight fiscal policy will play a decisive role in the disinflation process, according to a person with direct knowledge of the discussions.
Speaking on Tuesday, Simsek emphasized that spending discipline and a crackdown on the shadow economy will be central to these policies, with no new taxes planned for the time being, the person said, asking not to be named because the meeting was closed to the press.
Simsek, along with Trade Minister Omer Bolat and Central Bank Governor Fatih Karahan, made the pitch at a conference co-hosted by Goldman Sachs Group Inc. and the Turkey-US Business Council on the sideline of the UN General Assembly in New York.
The finance chief has sought to reassure investors of Turkish President Recep Tayyip Erdogan’s embrace of conventional monetary policy, after the latter spent years pushing an unorthodox approach of cutting rates to tame inflation. Since Turkey’s pivot to tighter monetary policies last year, Simsek has been engaging investors to attract foreign capital.
For the last six months, the benchmark interest rate has been held at 50% as officials seek to hose down inflation that ran as hot as 75% earlier this year.
The minister said the lagged effect of monetary policy and the negative fiscal impulse will be the main determinants of disinflation, while dismissing concerns about a tradeoff between inflation and growth, according to the person.
The minimum-wage raise as well as the size of administrative price and tax raises in 2025 are among the main metrics that investors and economists are watching out for on the fiscal side that will impact inflation. Investors are hoping for a minimum-wage increase that’s aligned with the central bank’s inflation projections, and one that’s smaller than the 49% hike at the start of this year.
Foreign investors showed renewed interest into Turkish assets this year, with many betting the lira will rally via carry trades — borrowing abroad at low rates to buy the lira — or holding shorter-term bonds. However, foreign direct inflows around $2 billion in the first half of the year are still less than half the average during the decade before the pandemic.
President Recep Tayyip Erdogan on Monday urged American firms, including in aviation and banking, to take advantage of his government’s support during an event hosted by the US Chamber of Commerce.
--With assistance from Beril Akman.
(Updates with chart, background in seventh paragraph.)
©2024 Bloomberg L.P.
