Minister Şimşek's 'SCT' statement: 'We will not jeopardize inflation'

Treasury and Finance Minister Mehmet Şimşek stated that they are determined to reduce inflation and that inflation is falling. Minister Şimşek said, "Fuel SCT and tobacco products SCT... We will adopt an approach in both of these areas that will not jeopardize the inflation target."

The economic management met with journalists following the New GAP Action Plan Consultation Meeting and the final Economic Coordination Board (EKK) meeting of the year to answer questions regarding the agenda. Treasury and Finance Minister Mehmet Şimşek stated that they are determined to reduce inflation, recalling that inflation was 64 percent in 2022 and 65 percent in 2023, and said, "Our Central Bank has a forecast that we will close the year in the 44-45 percent range. Therefore, inflation is falling."

'WE AIM TO REDUCE THE BUDGET DEFICIT FROM APPROXIMATELY 5 PERCENT TO AROUND 3 PERCENT IN 2025'

Emphasizing that inflation will continue to fall in 2025, Şimşek made the following assessment:

"Monetary policy has a delayed effect. Monetary policy will continue to contribute to the disinflationary process in the coming period as well. The delayed effect will be in place for 18 months. We aim to reduce the budget deficit from approximately 5 percent to around 3 percent in 2025. Therefore, the disinflationary effect of the reduction in the budget deficit will also be clearly seen. We are also showing maximum sensitivity regarding administered/directed prices. For example, natural gas and electricity price increases were around 38 percent in 2024. In other words, it went in parallel with the Central Bank's original target. We will have a similar approach in 2025. There are a few important factors here, that is, if we put electricity and natural gas aside, fuel SCT and tobacco products SCT... We will adopt an approach in both of these areas that will not jeopardize the inflation target. Under normal circumstances, there would be an increase in SCT based on the last 6 months' domestic PPI rate, which is quite low, so it would not be right for me to give an exact figure because the year-end inflation has not been announced, but you will see that it will be in a way that does not jeopardize 2025 inflation."

SCT STATEMENT ON FUEL AND TOBACCO

Şimşek stated that they may evaluate the fuel issue. Expressing that many fees and charges that increase with the revaluation rate are not already in the inflation basket, Şimşek said that these are services that households receive periodically based on their needs.

Stating that price adjustments in the energy sector are very critical, Şimşek said, "In administered/directed prices, fuel SCT is important, as is the SCT on tobacco products. Since the others have no or very limited impact on inflation, we evaluate them in a separate framework."

Şimşek noted that they will seriously take into account the Central Bank of the Republic of Turkey's (TCMB) 2025 target in administered/directed prices.

Stating that their priority is to increase food supply, Şimşek announced that they will continue to support the Ministry of Agriculture and Forestry in matters such as irrigation, land consolidation, food logistics, and the establishment of specialized food zones.

Şimşek also pointed out that they will prioritize food supply in the budget, emphasizing that this is an important step for supply-side disinflation.

SOCIAL HOUSING SUPPLY

Underlining that increasing the supply of social housing is also an important component of supply-side policies, Şimşek made the following assessment:

"Energy transformation is also very critical. Because it will indirectly support disinflation through the current account deficit. Turkey's energy imports over the last 21 years are 1.5 times its current account deficit, that is, 948 billion dollars. Thanks to the good work done by our Ministry of Energy and Natural Resources, as foreign dependency in energy decreases, inflationary pressures through the current account deficit and the exchange rate will also be more manageable. In other words, food supply, energy supply, and social housing supply will all be effective. There are very important initiatives taken by our Ministry of Industry and Technology. Especially for increasing production and investments, and for reducing the current account deficit... All of these actually support medium-to-long-term disinflation. That is why these areas are already supported through the Investment Commitment Advance Loan (YTAK)."

'WE SEE GLOBAL INTEGRATION AS PART OF THE DISINFLATIONARY PROCESS'

Şimşek drew attention to the importance of not allowing monopolization on a sectoral or product basis.

Emphasizing that it is important to facilitate market entry and exit in all products and sectors and to strongly continue global integration, Şimşek said:

"Because where there is competition, there is productivity and innovation. This is, of course, disinflationary. For this reason, updating the Customs Union with the European Union (EU) is valuable. It is important to add agriculture, services, and public procurement there. Speaking of public procurement, public procurement reform is also an important reform in this context. We actually see global integration as a part of the disinflationary process in a sense."

Şimşek said that the delayed effect of monetary policy, especially the forecasts for 2025 in fiscal policy, administered/directed prices, and structural transformation and structural reforms will permanently support disinflation.

Explaining that the TCMB has established the necessary framework in monetary policy for disinflation, Şimşek stated that this framework will continue strongly.

'WE WILL CONTINUE TO TAKE STEPS THAT WILL MAKE KKM EVEN LESS ATTRACTIVE'

Touching on the issue of Protected Turkish Lira Deposit Accounts (KKM), Şimşek stated that the process of exiting KKM will continue without disrupting the markets.

Minister Şimşek used the following expressions:

"So far, this process has been managed very well. In other words, the KKM balance, which peaked at 144 billion dollars in August last year, has now fallen to the 30-35 billion dollar range. About one-third of this belongs to legal entities, and the rest consists of deposits belonging to individuals. We had already removed the corporate tax exemption for legal entities, making it less attractive. We also introduced withholding tax for individuals, so we will continue to take steps that will make KKM even less attractive in the coming period. As a matter of fact, our Central Bank has already made one or two regulations recently."

'WE ARE NOT SUBSIDIZING CONSUMER LOANS, AND WE WILL NOT'

Answering a question about loans, Şimşek said, "We do not have a loan restriction in areas such as agriculture, exports, investment, and tradesmen; in fact, we have interest subsidies through the budget in these areas."

Recalling that they provide rediscount loans for exports, Şimşek announced that the loan amount in this area in the last year was 531 billion liras.

Explaining that there is an additional 150-160 billion liras with other supports and items in this area, Şimşek made the following assessment:

"Again, we will provide 160 billion liras in support to our farmers as interest subsidies for next year. Similarly, we will continue to cover 50 percent of the interest on loans used by our tradesmen as the state. We are already providing subsidies in agriculture, exports, and tradesmen loans. In investments, we also have significant interest support for investments through YTAK and interest support in the incentives provided. This will be revealed much more clearly with the new incentive system, but we are not subsidizing consumer loans, and we will not."

Stating that inflation is falling, Şimşek said, "In the coming period, access to finance will likely improve further for all segments, and conditions will become more favorable. As a matter of fact, global conditions are also becoming more supportive."