With the new economic management, Turkey, which is moving towards orthodox policies, will continue its monetary tightening.
Minister of Treasury and Finance Şimşek stated, ‘The simplification and tightening steps we have initiated in monetary policy to strengthen our financial stability and enhance the functionality of market mechanisms will continue.’
Speaking at the opening of the 66th General Assembly Meeting of the Turkish Banks Association (TBB), Minister of Treasury and Finance Mehmet Şimşek stated that the banking sector, through its structural transformation and good governance since the early 2000s, has made significant contributions to Turkey’s growth performance with a strong momentum.
Highlighting the sector’s resilience in the face of global financial crises, recent pandemics, and various internal and external shocks, Şimşek emphasized, “(The banking sector) is, therefore, a cornerstone of our economy.”
According to a news article on Turkey’s news agency AA, Şimşek mentioned that they are in a period of weak global growth and that over the next 5 years, global growth is expected to be significantly below long-term averages. He continued his remarks as follows:
“Global growth is expected to be around 3 percent over the next 5 years. Of course, the impact of global monetary tightening is present, and there are also structural headwinds. The effect of global monetary tightening is being strongly felt. Global inflation is decreasing, but it is still well above long-term averages. The decrease in inflation is certainly important. It is likely that we are nearing the end of the era of global monetary tightening. We are close. Therefore, from the second half of 2024 onwards, the possibility of relaxation has increased. Tightening of financial conditions has accompanied the global fight against inflation.”
Mehmet Şimşek stated that in the past 20 months, central banks of 12 developed countries increased interest rates a total of 104 times, while in 22 developing countries similar to Turkey, interest rates were increased 158 times, totaling 262 rate hikes.
Regarding the nearing end of the global monetary tightening cycle, Şimşek considered it as a “positive” development and continued:
“We hope that starting from the second half of 2024, we will face a more supportive environment in global financial conditions. When we look at our country, our growth performance continues to be quite strong. In the period from 2003 to 2022, our country has grown on average by 5.4 percent in real terms. Despite the challenging global financial conditions in 2023, we foresee a growth rate of around 4.5 percent. However, the main determinant of growth for a while has been domestic demand. Of course, this strong increase in domestic demand threatens macro-financial stability, current account deficit, and inflation. Our country is currently facing these kinds of challenges.”
“Our fundamental principles in economic policies are transparency, consistency, predictability, and adherence to international norms.”
Minister of Treasury and Finance Şimşek emphasized the clear need for rebalancing in the Turkish economy, stating, “We shape our policy framework according to this need for rebalancing. As I have previously stated, transparency, consistency, predictability, and adherence to international norms are our fundamental principles in economic policies. Within the framework of these fundamental principles, we shape our economic policies.”
Şimşek underlined that they will progress within a system that embraces principles of entrepreneurial freedom, a free exchange rate regime, a floating exchange rate system, an outward-oriented and rule-based economy. He further stated, “In the short term, our priority is, of course, to establish macro-financial stability permanently and increase predictability. We are formulating and shaping our monetary, fiscal, and credit policies in a way that achieves these goals. The simplification and tightening steps we have initiated in monetary policy to strengthen our financial stability and enhance the functionality of market mechanisms will continue. We will continue to coordinate monetary and fiscal policies.”