{"id":480309,"date":"2026-06-07T05:12:48","date_gmt":"2026-06-07T05:12:48","guid":{"rendered":"https:\/\/www.newsbeep.com\/il\/480309\/"},"modified":"2026-06-07T05:12:48","modified_gmt":"2026-06-07T05:12:48","slug":"bne-intellinews-turks-cannot-be-made-to-believe-inflation-will-come-down-says-veteran-economist","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/il\/480309\/","title":{"rendered":"bne IntelliNews – Turks cannot be made to believe inflation will come down, says veteran economist"},"content":{"rendered":"

The biggest obstacle obstructing Turkey\u2019s government in its attempts to lower inflation is its inability to persuade the public that price growth will slow, an economist said on June 5 as the country\u2019s official inflation rate once again showed acceleration<\/a>.<\/p>\n

\u201cThey cannot make people believe that inflation will come down, which increases pricing as cautious people are trying to prepare for the storm ahead,\u201d veteran Turkish economist and writer Mustafa Sonmez was reported as saying by AGBI.<\/p>\n

Appointed after President Recep Tayyip Erdogan\u2019s last election win in May 2023 \u2013 when Turkey\u2019s leader of 23 years authorised a switch away from failing \u201cErdoganomics<\/a>\u201d that persisted<\/a> with low interest rates despite roaring inflation \u2013 the country\u2019s \u201corthodox<\/a>\u201d economic management officials, led by ex-Wall St banker Mehmet Simsek<\/a>, has only managed to bring official inflation down from June 2023\u2019s 38% to the latest reading of 33% with a disinflation campaign focused on reducing demand<\/a>.<\/p>\n

\u201cThis shows that narrowing demand is not sufficient and you have a supply problem, especially with food staying at 35 percent and housing costs at 45 percent, which clearly shows they cannot bring it down,\u201d Sonmez was further cited as saying.<\/p>\n

In weighing up why Turkish inflation is again on the rise, the impact of the US-Israeli war with Iran and the Iranian blockading of the Strait of Hormuz energy export chokepoint has to be taken into account, given Turkey is hugely dependent on imported oil and gas and vulnerable to high energy prices, but the country\u2019s consumer price index growth has officially been around 32% or a little above for the past year \u2013 not just during the three months of the conflict.<\/p>\n

Prior to the release of the May inflation figures, Simsek defended the disinflation programme, while pointing the finger at external difficulties, saying on social media: \u201cWe live in a shock-prone world and a tough neighbourhood. Shocks may slow the pace of the programme\u2019s delivery, but they are unlikely to change the direction of travel.\u201d<\/p>\n

The Turkish lira (TRY) dropped to a record low of 46 to the dollar as the market digested the inflation data.<\/p>\n

Bloomberg on June 5 reported that Algebris Investments was purchasing default protection on Turkish bonds, as it was seeing a higher probability of a credit event with the Iran war adding to strains on the economy.<\/p>\n

Gabriele Foa, who manages \u20ac3.7bn ($4.3bn) for Algebris from Milan, told the news service that Turkey\u2018s economic situation was increasingly fragile, driven by a deteriorating current account deficit, climbing energy prices and low international reserves pushing up the risk of dollarisation.<\/p>\n

\u201cIn credit and in fixed income in general, the value is extremely limited; you are not adequately compensated for what could happen in the next couple of years,\u201d Foa was reported as saying, adding: \u201cWe believe it is time to sell Turkey rather than buy.\u201d<\/p>\n

Central bank data show an almost 40% fall in the value of foreign holdings of Turkey\u2019s local-currency securities since prior to the Iran war, which ignited at the end of February.<\/p>\n

Turkish lira bonds have handed investors a 3.2% loss this year against a 1.1% gain for emerging markets as a whole, while sovereign debt in dollars showed a 0.3% loss against an average gain of 1.5% for developing country debt, according to data compiled by Bloomberg.<\/p>\n

Turkey\u2019s gross FX reserves contracted by one third this year to $53bn on May 29, their lowest point since June 2021, according to central bank figures.<\/p>\n

\u201cSeeing a default in Turkey is very difficult, but it is not a country where you can rule out a default,\u201d Foa was also quoted as saying.<\/p>\n

\u201cReserves are low compared to local dollars, and local dollar deposits plus the stock of debt are also very high relative to reserves. So, there is a situation in which it could happen,\u201d he concluded, also observing: \u201c2024 and 2025 were the perfect environment for the Turkey trade, but Turkey has reached the limits of its economic programme and it is better to wait on the sidelines now.\u201d<\/p>\n

Turkey\u2019s central bank took 900 basis points off its benchmark rate during the second half of last year before putting the brake on in January, since when it has held the policy \u200brate steady at 37%. After the outbreak of the war, the regulator tightened liquidity conditions by pausing funding<\/a> from the main policy rate and moving to the overnight rate of 40%.<\/p>\n

The course of the war from here could make or break the economic outlook for the country\u2019s brittle economy.<\/p>\n

\u201cNow that the oil price looks clearly set to remain high for longer, if the Turkish central bank does not signal willingness to hike rates and keep them high for longer, pressure on the lira is likely to mount,\u201d said Tatha Ghose, senior EM economist at Commerzbank AG.<\/p>\n

Added Ghose: \u201cThe likelihood of reserves dropping further because of daily FX management will increase, and the probability of a disorderly development in markets will rise, too.\u201d<\/p>\n

The central bank\u2019s Monetary Policy Committee (MPC) will hold<\/a> its fourth rate-setting meeting of the year on June 11.<\/p>\n","protected":false},"excerpt":{"rendered":"The biggest obstacle obstructing Turkey\u2019s government in its attempts to lower inflation is its inability to persuade the…\n","protected":false},"author":2,"featured_media":480310,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[156309,114,9561,222625,85,932,46,21109,222624,222626,96294,222627,1582,222623,2201],"class_list":["post-480309","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-believe","tag-business","tag-economist","tag-erdoganomics","tag-il","tag-inflation","tag-israel","tag-mehmet-simsek","tag-mustafa-sonmez","tag-orthodox","tag-price-growth","tag-supply-problem","tag-turkey","tag-turks","tag-war"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/480309","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=480309"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/480309\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/480310"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=480309"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=480309"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=480309"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}