As Türkiye continues its battle against inflation, the head of Istanbul’s leading business organization is urging policymakers to stay the course, but with an approach that is not only fast and effective but also stable and long-lasting.
Şekib Avdagiç, head of the Istanbul Chamber of Commerce (ITO), emphasized on Monday the importance of maintaining Türkiye’s production and export capacity while pushing ahead with disinflation policies.
“We fully support the efforts to lower inflation. We expect it to be reduced at a reasonable pace, effectively, but also in a balanced and sustainable manner,” Avdagiç said in a written statement.
Annual inflation slowed to 37.9% in April, the lowest level since December 2021, according to official data. Yet, monthly inflation climbed to 3%, partly due to a depreciation in the value of the Turkish lira following the arrest of Istanbul Mayor Ekrem Imamoğlu and uncertainty about U.S. tariffs.
Imamoğlu was jailed in late March on corruption charges pending a trial. That sent the lira and Turkish assets sharply lower before authorities acted to stabilize the markets, which eventually led the central bank to reverse its easing cycle.
The Central Bank of the Republic of Türkiye (CBRT) delivered a surprise 350-basis-point interest rate hike last month to 46%, which boosted Turkish assets and signaled a renewed commitment to tackling inflation.
Before that, it had gradually cut its benchmark one-week repo rate in December and lowered it to 42.5% in early March as inflation eased.
Easing cycle
Avdagiç said the business world expects the easing cycle to start again as soon as the next Monetary Policy Committee (MPC) meeting, which is scheduled for June 19.
“We hope that, even with some delay, starting from the upcoming Monetary Policy Committee meeting, we can pick up where we left off in the second half of this year,” Avdagiç noted.
Annual inflation exceeded 75% in May 2024, before starting to slow in June amid aggressive monetary tightening as part of the government’s economic program implemented since mid-2023.
Avdagiç acknowledged that the government has been pursuing a consistent macroeconomic policy for nearly two years, and said that while some measures have been the subject of debate, there is a general agreement around the broader economic objectives.
Beyond price stability, Avdagiç said more equitable income distribution was among business leaders’ key expectations, citing concerns around Türkiye’s long-standing structural issues in foreign trade.
“One of our core perspectives as ITO is that Türkiye must break free from its 150-year-old chronic foreign trade deficit,” he said. “We must acknowledge that it is unsustainable to keep running a trade deficit and adjust all our policies accordingly.”
He warned that a weak exchange rate, while helpful for stabilizing prices, could unintentionally undermine exports by making imports more attractive. “We saw this movie before, back in 2004 and 2005,” Avdagiç said. “The dollar fell from 1.40 to 1.17. Interest rates were low, but at that time, the focus was always on export growth. However, it is crucial to always consider both exports and imports simultaneously before making any decisions. Yes, exports increased, but imports rose at an even higher pace.”
“Therefore, Türkiye must undoubtedly implement a more effective process to promote exports once again,” he noted.
Global headwinds
Turning to global trade dynamics, Avdagiç cautioned that the European market remains tight, which limits export growth potential in Türkiye’s largest trading bloc.
He also pointed out that due to the chaotic situation China is facing in the U.S. market, it is adopting stricter policies towards many countries, including Türkiye.
“China is lowering prices and offering payment terms. Sometimes, a Chinese seller offers machines with 60-month installments in Turkish lira. What producer can compete with that? In such a situation, which buyer would take out a bank loan to purchase a machine?” Avdagiç said.
His remarks came before the U.S. and China on Monday announced they had agreed to temporarily slash reciprocal tariffs, seeking to end a damaging trade war that has stoked fears of recession and roiled financial markets.
The U.S. will cut extra tariffs it imposed on Chinese imports in April this year to 30% from 145% and Chinese duties on U.S. imports will fall to 10% from 125%, the two sides said on Monday. The new measures are effective for 90 days.
