Turkey should prioritise battle against inflation, top business groups say

Turkey should make the battle against inflation the primary goal of economic and monetary policy, the country’s largest business groups said in a joint statement.

“Every economic recovery that begins without price stability is short-lived and narrows the investment horizon for businesses,” the organisations said on Tuesday. They included the Turkish Industry and Business Association (TÜSİAD), the Union of Chambers and Commodity Exchanges of Turkey (TOBB), the Independent Industrialists and Businessmen Association (MÜSİAD) and the Turkey Tradesmen and Artisans Federation (TESK).

“We are closely following the reform agenda led by President Recep Tayyip Erdoğan and support the primary goal of fighting inflation,” they said.

Turkey’s central bank hiked its benchmark interest rate to 17 percent from 8.25 percent in the latter part of 2020 to help rein in price increases and to stabilise the lira, which slumped to an all-time low in early November. The bank left the benchmark rate unchanged at a meeting last week. Inflation in the country stood at 14.6 percent in December and is expected to nudge higher this quarter.

“We consider price stability as a precondition to ensuring the increase in prosperity that our country deserves,” the business groups said. “With price stability, Turkey’s investment environment will improve, there will be more predictability and it will be possible to attract high-tech, value-added new investments to our country.”

They said that they welcomed an initiative by the Treasury and Finance Ministry and the central bank to consult with them on future economic policy and price increases.

“This consultation process, taking into account that all prices are established under free market conditions, will contribute to the sectoral monitoring of global and local price dynamics, and to identifying structural risks, cost dynamics and supply-demand imbalances in product groups, thus supporting the data-based policy design process,” they said.

The government has pledged to make reducing inflation a priority for economic policy after Erdoğan sacked and replaced the governor of the central bank on Nov. 7 and hired a new treasury and finance minister.

But this month, Erdoğan called for lower interest rates in Turkey, complaining about high borrowing costs for businesses. He maintains that higher interest rates are a cause of inflation, a view that contradicts with conventional economic wisdom.

This week, Erdoğan instructed economy officials to investigate increases in food prices, saying that the Turkish people should not be expected to endure high inflation and high interest rates.