Turkey Raises Minimum Wage by 49% Amid Inflation Challenges

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In response to the soaring inflation rate of 62% in November 2023, Turkey’s government has announced a significant increase in the minimum wage. The new minimum wage will be ₺17,002 (€520) per month, reflecting a substantial 49% rise from the mid-year adjustment. This move is intended to alleviate the financial burden on households grappling with the high cost of living and may also serve as a strategic appeal to voters ahead of the municipal elections in March 2024.

Government’s Pledge and Worker Relief

Labour Minister Vedat Işıkhan expressed satisfaction in fulfilling the government’s commitment to preventing workers from being adversely affected by inflation. Approximately one-third of Turkey’s 86 million population relies on the minimum wage, and this adjustment is expected to bring relief to a significant portion of the workforce. The wage increase is double the rate set at the beginning of the current year.

Inflation Challenges and Currency Crisis

While the minimum wage hike is aimed at addressing the financial concerns of citizens, there are concerns that it might exacerbate the country’s already staggering inflation. Turkey has been grappling with severe inflation, triggered by a currency crisis in late 2021. The Turkish lira has depreciated by around 35% against the dollar in the current year. To counteract inflation and the currency crisis, the central bank has implemented seven consecutive interest rate hikes, raising the benchmark rate to 42.5%.

Central Bank’s Statement and Market Outlook

The Monetary Policy Committee has signaled its intention to conclude the tightening cycle as swiftly as possible, while ensuring sustained price stability. Despite ongoing efforts to tame inflation, there is optimism in the bond market that Turkey is moving in the right direction. Analysts, including Cagri Kutman from KNG Securities and Bartosz Sawicki from Conotoxia fintech, anticipate that the central bank may complete its rate hikes by reaching 45% next month. It is suggested that the tightening measures could be halted before the local elections in March, indicating a delicate balance between economic stabilization and political considerations.

SOURCE: Ref Image from Reuters

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