Turkey's inflation rate fell below 50 percent for the first time in more than a year, underscoring how President Recep Tayyip Erdo's economic recovery program is succeeding in slowing runaway price growth.
Consumer prices rose 49 percent in September compared to the same month of 2023, below the previous month's rate of 52 percent and the slowest pace since July 2023, the Turkish Institute of Consumer Affairs said on Thursday. statistics.
Inflation is now below central banks' policy rate of 50%, meaning so-called real interest rates have turned positive for the first time since 2021, according to FactSet data.
Slowing inflation and rising real rates underscore how far authorities are making in turning around Turkey's billion-dollar economy after a series of radical policy reversals that began after Erdoan's re-election in May 2023.
While Erdoan had previously championed an idiosyncratic policy of keeping rates low at all costs, Turkey has since imposed painful austerity measures, including higher rates and taxes, in an effort to control soaring prices .
Finance Minister Mehmet Imek, who pledged to restore rational economic policy, said on Thursday that data demonstrated that reducing inflation would not only solve the problem of the cost of living, but would also permanently increase the well-being of our citizens.
Erdoan's previous policies had caused major imbalances in the Turkish economy, with inflation peaking at over 85% in 2022.
He fueled the overheating economy ahead of the May 2023 general election with massive stimulus measures, including a month of free gasoline for households and increases in the minimum wage and public sector wages.
Consumers tried to protect their savings by buying goods such as appliances and cars, and transferring their funds to dollars and euros, which widened the current account deficit and eroded central banks' foreign exchange reserves. .
The Turkish president changed course after his re-election, recognizing that a more conventional economic policy was the only way to bring the country back from the brink of a worsening crisis.
Turkey's central bank has increased its main interest rate by more than 40 percentage points since launching the new program in June last year. Imek has used a range of measures, including increasing taxes on oil, to try to reduce inflation, reduce the current account deficit and replenish the central bank's foreign exchange reserves.
The new measures helped attract international investors who had fled Turkish markets in recent years. Turkey sold its largest ever dollar-denominated bond last week.
The rise in real rates is a key achievement of the imeks program. Economic officials are betting that positive real interest rates will help ease some economic imbalances by increasing the appeal of holding funds in Turkish savings accounts rather than using foreign assets and currencies as a store of value.
Despite this progress, investors and analysts say Turkish policymakers still have a long way to go before the economy returns to a more stable footing. They also worry about how long Erdoan will stick to the new program, which has dented its popularity since many Turks still do not feel the benefits of slowing inflation.
Erdoan's political party suffered its biggest defeat in local elections last March, with the economy playing a key role in the poor results. But analysts say authorities are betting that slowing price rises will ease pressure on the government, with the next round of general elections scheduled for 2028.
Tighter financial conditions and monetary policy are starting to contribute to a return to a disinflationary path, said Haluk Brmceki, an Istanbul-based economist.
