Turkey Rolls Release Economic Rescue Plan, Reversing Lira's Spiral

September 8, 2023: On Wednesday, Turkey jacked up its inflation anticipations and cut that of economic development as it seeks to take a more orthodox and realistic policy path that critics say could finally push the patience of President Tayyip Erdogan.

Presenting the new forecasts, Erdogan said that tight monetary policy would lower inflation to unmarried digits, which adds Turkey will not compromise on economic growth as policies are adjusted.

The country sees annual inflation of 65% at year-end and 33% next year, up from 24.9% and 13.8%, in forecasts it published a year ago.

It trimmed GDP development forecasts to 4.4% this year and 4% in the expectations year, which is even higher than most economists expect, from 5% and 5.5% previously.

The account deficit is anticipated to be $42.5 billion in 2023 and $34.7 billion in 2024. 

Officials unveiled the forecasts in the annual “medium-term program”, seen as a milestone in a broader policy U-turn that began in June and is meant to rein in inflation anticipation that have soared for years.

After his May re-election, Erdogan, faced with deep economic strains and badly depleted forex reserves named a new cabinet and central bank chief to undertake bold interest pace hikes and free up credit and forex markets.

The lira has since shed 25% to the dollar, and annual inflation jumped to nearly 59% last month.

The economy is expected to delay through year-end – ahead of nationwide municipal elections set for March next year – as stimulus tied to the May elections fades and as the policy rate hikes to 25% from 8.5% start to weigh.

A Reuters poll last month showed expectations of 2.9% full-year growth, lower than a trend in the emerging market economy that seeks to reverse a years-long exodus of foreign investors.

With Erdogan’s ruling AK Party seeking to reclaim big cities Istanbul and Ankara from the opposition in the March vote, some analysts say higher inflation, unemployment, and lower growth could test the president’s patience with the U-turn.

Erdogan has fired four central bank governors in four years. His push to slash rates despite rising prices led to a historic currency crash in late 2021 and sent inflation above 85% last year.