TEPAV: Policy rate should be increased to 45 percent for low inflation

The Turkish Economic Policy Research Foundation (TEPAV) prepared a report on what level the policy rate should be for low inflation.

The report noted that steps taken in the right direction must be continued to ensure macroeconomic stability and stated that a policy interest rate of 45 percent was necessary to reduce inflation.

PERIOD OF HIGH INFLATION UNTIL THE FIRST MONTHS OF 2024

The Turkish Economic Outlook report prepared by TEPAV Structural Policy Center Director Burcu Aydın will be published periodically twice a year from now on.

According to the report, inflation will remain high this year and in the first months of 2024 due to deteriorating expectations, high exchange rates and post-election tax increases.

The report noted that raising the official interest rate to 40 percent this year and 45 percent next year would be “necessary to reduce inflation.”

The report predicted that inflation, after rising to 66 percent by the end of 2023, would fall to 39 percent by the end of 2024 and around 26 percent by the end of 2025, with the tightening of monetary policy.

DUE TO EXPENDITURE DEFICIT IN THE BUDGET

According to the report, while the budget deficit is due to spending, a limited increase in public revenue is expected due to economic growth.

Growth is expected to slow and employment opportunities limited in the short term due to measures that will restrict domestic demand. TEPAV analysts point out that the current account deficit will decrease with the normalization of domestic demand, and the relationship with GDP may be around 4.4 percent in 2023 and 3.9 percent in 2024.

DOUBLE-DIGIT UNEMPLOYMENT WILL CONTINUE

In the report, economic growth forecasts were 3.7 percent for 2023, 2.9 percent for 2024 and 3.4 percent for 2025.

Job growth is estimated to be limited as growth will slow as domestic demand is controlled and consequently the unemployment rate will be 11.7 percent in 2024 and 12.8 percent in 2025. (REUTERS)