Turkey’s new-look economic team met for the first time with dozens of international investors on Friday and pledged to continue hiking interest rates, even as economic growth slows, to head off rebounding inflation, two sources said.
According to the sources and a draft programme, the eight-hour meeting in Istanbul included Finance Minister Mehmet Simsek and Central Bank Governor Hafize Gaye Erkan discussing monetary and fiscal policy and the economic outlook.
The face-to-face meeting with more than 40 investors marks a more transparent market turn by the authorities, and comes two months after President Tayyip Erdogan named Simsek and Erkan to the positions to orchestrate a U-turn toward more orthodoxy, wrote Jonathan Spicer and Orhan Coskun for Reuters.
The two sources, who requested anonymity to discuss details of the private meeting, said Simsek stressed that reducing inflation was the priority and struck a confident tone that policy was returning to more normal settings.
He told investors that Erdogan fully supported the monetary tightening and that “gradual” rate hikes would continue, pinching credit and leading to somewhat slower economic growth but not a sudden stop, one of the sources said.
The central bank under Erkan has raised its key rate by 900 basis points to 17.5% since June, though the pace of tightening missed market expectations. Last week it more than doubled its year-end inflation forecast to 58%, meeting expectations.
Under the previous governor, the bank had slashed rates to 8.5% from 19% in 2021 in line with Erdogan’s unorthodox belief that high rates fuel inflation. That sparked a currency crisis and the lira weakened 44% in 2021, 30% in 2022, and another 30% so far this year.
Inflation touched a 24-year peak of 85.5% last October. It subsequently eased but then rose sharply again in July to nearly 48%.
Al Monitor: Turkey’s new economy team wins over foreign investors
Simsek and Erkan addressed investors in the Turkey Economic Forum organized by JP Morgan that brought together 50 foreign companies, Turkey’s HaberTurk TV reported. The duo also held separate meetings with international companies including JP Morgan, Singapore Wealth Fund and Franklin Templeton, according to Turkey’s public broadcaster TRT, reported Ezgi Akin for al Monitor.
In a bid to regain the trust of Western-based foreign investors, the Central Bank to raise its interest rates by 900 basis points in successive rate hikes in June and July.
The duo’s takeover of Turkey’s economic management in June seem to have won back foreign investors’ trust. Overseas investors bought $179 million in local equities last week, an eighth straight week of inflows, according to the latest data from the Turkish Central Bank.
In a post on X, formerly known as Twitter, on July 29, Şimşek hailed a surge in investor interest in Turkish assets, citing some significant deals.
“In addition to FDI inflows from GCC countries, expected to surge over the next three years, we have seen an increase in equity and debt deals,” he said.
He also mentioned about Yapi Kredi’s offering. “First, the successful offering of Yapi Kredi shares to institutional investors this week – $250 million – largest equity offering in the last three years – Over 5x demand – Close to 40 U.S. and European investors [mostly long only and some hedge funds].”
Şimşek also mentioned the acquisition of MNG Kargo by DHL and the partnership between Rönesans Enerji and TotalEnergies.
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