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Türkiye’s industrial sector could shrink by half until inflation falls to 15%, as a result of tight monetary policy that continues to stifle exports, warns Turkish Exporters Assembly (TİM) Chair Mustafa Gultepe.
Speaking to business-focused dunya.com, Gultepe asserted that exporters suffer the most during the disinflation period, adding that the process is being carried out by placing pressure on the export industry. He remarked that the current policy is being implemented at the expense of the export industry.
Highlighting the nearly 10-point gap between the inflation rate (37%) and the policy interest rate (46%), Gultepe stressed the need to re-establish the correlation between exchange rates and inflation to avoid contraction.
“When the country becomes expensive, production halts; the motivation to export fades,” he said. “Last month’s rise in exports is misleading — it was due to two extra working days and $450–500 million from favorable parity shifts.”
Türkiye’s exports totaled $20.9 billion in April, marking an 8.5% year-on-year increase — the highest growth in nine months and the second-highest April figure on record.
Criticizing Türkiye’s overreliance on taxes as a primary source of revenue, Gultepe said the country needs comprehensive tax reform to reduce cost burdens and increase income.
Although he acknowledged that the overall tax burden in Türkiye is not higher than in Europe, Gultepe noted, “There is an issue with VAT that needs simplification.”
“The state must generate revenue, but printing money is not a sustainable solution,” he added.
Türkiye has been implementing a disinflation program since mid-2023 to bring down annual inflation, which had surged to 75% in May 2024, aiming to reduce consumer price increases to single digits. According to the central bank's inflation report, the forecast range for 2025 stands between 19% and 29%, and between 6% and 18% for 2026.
As of April, inflation showed a modest decline to 37.89%, down from 38.10%. Meanwhile, the policy interest rate remains at 46%, following a 350-basis-point hike by the central bank in its April monetary policy meeting.
The Turkish Lira Overnight Reference Rate (TLREF), commonly known as the overnight funding rate, currently stands at 49%, making it increasingly difficult for Turkish lenders to access liquidity.
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