An interview with an expert in economics about Turkey’s economic risks and monetary policy

Prof. Dr. Selva Demiralp, a faculty member in the Economics Department at Koç University, shared her views on Turkey’s economic risks and monetary policy in a recent interview, highlighting several important points. Down below are the highlights of the interview.

MONETARY POLICY

Demiralp sees the post-May 2023 elections shift towards tight monetary policies to combat inflation as a positive step. However, she criticizes the Central Bank of Turkey (CBRT) for not front-loading interest rate hikes, which delayed controlling inflation expectations. She also points out the lack of necessary support from fiscal policy and the absence of long-term measures to increase production capacity.

2025 OUTLOOK

Demiralp identifies the key risk for 2025 as a slowdown in growth that could pressure monetary policy to ease prematurely. Under these conditions, she argues that reducing inflation below 27% will be challenging. She also emphasizes the lack of a sustainable growth program.

INTEREST RATE CUTS

Demiralp believes the ideal timeline for rate cuts should not be before the end of the first quarter of 2025. She warns that an early cut could be risky since inflation trends have not improved enough.

PURCHASING POWER OF LOW-INCOME GROUPS

Demiralp notes that rising inflation has reduced real purchasing power. She argues that simply adjusting wages based on inflation expectations is insufficient, and policies to enhance labor productivity are needed instead.

In summary, Demiralp stresses the need for more comprehensive and long-term strategies to effectively fight inflation.

Source: ekonomim.com