IMF Predicts Decline in Türkiye’s Inflation to 24% in 2024
Ankara, The Gulf Observer: Inflation in Türkiye is expected to decline to approximately 24% next year, according to a report released by the International Monetary Fund (IMF). The findings were part of the IMF’s 2024 Article IV Mission report, published on Wednesday.
The report highlighted that while headline inflation in Türkiye began to ease over the summer, it remains elevated. “Despite favorable base effects, still-strong inertia would keep inflation at around 43% at end-December,” the IMF noted.
In its analysis, the IMF emphasized that a tighter policy mix focused on fiscal measures would be essential to reducing inflation more swiftly and sustainably. The agency also recommended a larger and more front-loaded fiscal consolidation to help curb inflationary pressures.
The IMF projected that in the medium term, a further decline in inflation would restore confidence and enable economic growth to return to its potential rate of 3.5-4%. However, it cautioned that maintaining tight financial conditions would be necessary until inflation is firmly on a downward trajectory and inflation expectations align with the central bank’s forecasts.
Türkiye’s annual inflation rate was recorded at 61.78% in July, down from 71.60% in June and 75.45% in May. The IMF advised that the Central Bank of the Republic of Türkiye should continue to manage temporary exchange rate volatility without causing undue real appreciation and should aim to rebuild reserve buffers when possible. The report suggested that as inflation decreases and reserve buffers strengthen, interventions could be reduced, allowing the exchange rate to serve as a shock absorber. It also warned against intervening in response to persistent shocks.
The IMF’s report further noted that the combination of tight monetary and income policies is expected to dampen domestic demand, reducing economic growth to around 3% this year. On the external front, Türkiye’s current account deficit narrowed to 2.7% of GDP in the first quarter of this year and is projected to fall to around 2.2% of GDP in 2024.
Türkiye’s international reserves, net of swaps and other liabilities, saw an increase of $91 billion since April, leading to an upgrade in the country’s sovereign risk rating by international credit agencies. Additionally, credit default swap (CDS) spreads have declined by nearly 440 basis points since mid-2023.
The IMF welcomed Türkiye’s removal from the Financial Action Task Force (FATF) “Gray List” in June and stressed that further strengthening of policy frameworks, addressing barriers faced by small and medium enterprises (SMEs), and improving labor market efficiency would be crucial for boosting economic growth in the medium term.
