Turkey announces steps to support the economy and the priority to combat inflation

Turkey’s Treasury said on Friday that fighting inflation remains the top priority in its macroeconomic policies, after it, along with other state institutions, announced measures to support an economy suffering from high prices and a depreciating lira.

The ministry announced that it would issue local bonds linked to government companies’ revenues to encourage savings in pounds.

“Combating inflation remains the most important priority. Within this framework, it becomes clear the importance of coordination between institutions, and all our institutions act with understanding of that.”

The announcement of these steps led to the volatility of the lira’s transactions. It rose to 16.8 against the dollar before the announcement and then fell to 17.3 after it. By 0800 GMT, the lira was trading at 17.21 after the Treasury’s statement.

The lira has lost 23 percent since the beginning of the year, in addition to its 44 percent decline last year due to a series of interest rate cuts carried out by the Central Bank, under pressure from President Recep Tayyip Erdogan, despite the increase in inflation.

Inflation rose sharply due to the lira crisis, especially with the rise in energy prices this year after the Russian invasion of Ukraine.

The volatility of the economy and the market comes as Erdogan faces a difficult election in mid-2023, and his popularity has already been hit by a spike in inflation, which hit 73.5 percent in May.

The Treasury said the use of the lira and steps to increase its attractiveness would continue without compromising free market rules.

Other steps include the Banking Supervision Authority reducing the maximum maturity of consumer loans exceeding 100,000 pounds ($5814) to 12 from 24 months, and it also intends to ease restrictions on foreign investors’ access to the lira through currency swap facilities.