Turkey's Simsek says disinflation to continue, FX pass-through limited
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FILE PHOTO: Mirza Ozbag, 44, a vendor, waits for customers at his stall at a fresh market in Istanbul, Turkey July 5, 2023. REUTERS/Dilara Senkaya/File Photo
By Ebru Tuncay
SAPANCA, Turkey (Reuters) - Turkish Finance Minister Mehmet Simsek said on Friday that disinflation would continue despite some recent deterioration in expectations, adding that the government still sees inflation ending the year within its target range.
His remarks come a day after the central bank delivered a surprise 350 basis-point rate hike to 46%, reversing a short-lived easing cycle and signalling renewed commitment to tackling inflation.
The move followed weeks of market turmoil triggered by the March arrest of Istanbul Mayor Ekrem Imamoglu, President Tayyip Erdogan's main political rival.
"The recent deterioration in expectations may have had some effect, but we believe we will stay within the target by year-end," Simsek said.
The central bank's unexpected hike marked a shift from the easing that began in December, aiming to anchor inflation expectations and stabilize markets.
Economists expect the lira's recent weakening to feed into April and May inflation, though annual inflation slowed to 38.1% in March. The bank's year-end forecast remains at 24%.
Simsek also said the impact of exchange rate pass-through on inflation would remain limited due to weak domestic demand, and noted that recent financial market volatility could cause a temporary slowdown in economic activity.
"We are approaching a threshold where we can achieve moderate growth without generating a current account deficit," he added.
The lira had plunged to a record low and Turkish assets took a hit before the central bank intervened with reserve sales and tighter funding conditions.
The bank said the recent market turbulence was expected to slightly lift April inflation readings and reiterated that further tightening would be considered if inflation risks persist.
(Writing by Ece Toksabay; Editing by Jonathan Spicer)
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