Minimum Wage Hike Sparks Inflation and Rate Cut Speculations in Turkey

The Turkish government has said that in 2025, the national minimum wage will be 22,104 lira ($627) a month higher than the current rate by 30%. The decision is intended to serve two purposes: restraint of expenses and an attempt to fight against inflation. The hike concerning nearly 9 million workers is quite different from the union’s demand for a 70% increase in their wages. Some economists have criticized the increase saying it may slightly affect inflation but affirms the central bank’s preparedness to ease the policy.

It also estimates the inflationary impact of the wage increase to be less than one percentage point, in line with the central bank end-year inflation target of 21 percent. analysts say the alignment relieved pressure on ‘Monetary Policy’ that would see interest rate slashed between 150 and 250 basis points to the 50 percent rate.

Forecasts of the economic experts are changing with a lot of experts expecting a 200 bps cut. Filiz Eryılmaz, the analyst of ALB Yatırım commented that the government’s cautious approach towards the wage rises show that it is serious about fighting inflation systematically. However, Haluk Burumcekci of Burumcekci Consulting pointed out that the change is in line with Turkey’s other objectives regarding economic stability.

The inflationary effect of the wage hike will not be disastrous according to the central bank data. Inflation has also reduced from its highest level in May at 75% to 47.09% in November due to stringents measures in monetary policies. It will also publish its inflation report on the same week on Thursday and is likely to change its rate after months of stability.

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