Turkey Raises Minimum Wage by 30%, Boosting Rate Cut Chances

 

Turkey raised the minimum wage by 30% for 2025, providing a relief to investors looking for concrete steps to dial back populist policies and commit to curbing one of the world’s highest inflation rates.

The monthly minimum wage has been raised to 22,104 liras ($627) for 2025 from 17,002 liras, Labor Minister Vedat Isikhan said on Tuesday. \

The increase was in line with market expectations. More than a third of the labor force is on minimum wage, which also serves as a benchmark for other salaries

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Investors had warned that any hike above 30% could derail inflation projections laid out by the central bank and complicate the timing of a potential first interest-rate cut since February 2023. The minimum wage is seen as one of the key determinants of Turkish economic policy. 

“Given that the wage is adjusted with respect to expected inflation for 2025, it will make the central bank’s life easier,” said Selva Demiralp, a professor at Istanbul’s Koc University. “The chances of a rate cut is even higher now.”

Rates Decision

Policymakers expect price growth to slow to 21% at the end of next year from the current 47.1%. The central bank’s Monetary Policy Committee will announce its decision on interest rates on Thursday, with most of the economists surveyed by Bloomberg expecting a cut from 50%. 

President Recep Tayyip Erdogan, who has the final say on the politically-charged decision, has dramatically boosted salaries in the past to curry favor with voters battling one of the worst cost-of-living crises in decades. That’s fueled domestic demand, making it more challenging for the central bank to control prices. 

Since his reelection in May last year, Erdogan installed a new market-friendly team to reverse damage done by pursuing unorthodox policies, including ultra-low rates. The team, which includes Finance Minister Mehmet Simsek and central bank Governor Fatih Karahan rapidly increased borrowing costs to 50% and won the accolades of foreign investors. 

Still, officials have found it difficult to convince local businesses and households that they’ll rein in prices and restore welfare.

https://www.bnnbloomberg.ca/business/2024/12/24/turkey-raises-minimum-wage-30-for-next-year/