Turkey poised to introduce inflation-linked bonds to help protect savings

Turkey will shortly introduce inflation-linked bonds for individual investors, Treasury and Finance Minister Nureddin Nebati said.

The government has completed work on the new products, Nebati told the Hürriyet newspaper in an interview published on Monday.

Inflation in Turkey has surged to a two-decade high of 61.1 percent, eroding living standards and savings, and raising concern for financial stability in a country that has suffered two currency crises since 2018. The Turkish lira lost 44 percent of its value against the dollar last year after the central bank cut interest rates in the face of accelerating price increases.

“We have finished our work on the design and development of inflation-protected bonds for individual investors,” Nebati said. “After completing other operational processes related to the issuance of the notes, we will decide on the timing of the issuance within the framework of market conditions and our Treasury borrowing strategies and share it with the public.”

Nebati said the government was expecting price increases to slow and for high inflation to not become engrained in the economy. Some analysts have warned of a return to so-called 'inflation inertia' observed in the 1990's, during which high price increases encouraged further hikes and a cultural change in pricing behaviour.

“We expect a significant decrease in inflation in the coming period with the normalisation of commodity prices, the stability in the exchange rate and the additional steps we will take,” he said.

“We have now ensured stability in the financial markets and we have brought the volatility in the exchange rate under control,” Nebati said. “We expect monthly inflation to normalise in the short term. On the other hand, high inflation realisations in December 2021 and in the first quarter of 2022 may cause inflation to remain high for a certain period of time.”

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