Turkey must avoid a repeat of the last sharp hike in the minimum wage, which fueled inflation significantly, with the next minimum wage hike from early next year. Instead, Turkey should focus on measures to support the poorest, the head of the International Monetary Fund (IMF) mission in the country, Jim Walsh, told Reuters, BTA reports.
Walsh said on the sidelines of the IMF's annual meeting in Washington that discussion of the key rate cut was “probably premature”.
Ankara is expected to announce in December how much it will raise the minimum wage from the start of 2025, after raising the minimum wage by 49 percent in January this year, which pushed up inflation sharply in the first quarter.
„We hope that doesn't happen this year because we know from experience in many countries with high inflation that such wage setting at the national level is an important starting point for inflation expectations,” said Walsh.
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„There is a trade-off that the authorities have to make, and they are fully aware of that," he added.
Ankara should focus on developing social programs that would provide support to low-income households through cash transfers or by better targeting state support to boost incomes for lower-wage workers, Walsh said.
Expectations in the markets are for an increase in the minimum wage in January by around 25 percent, according to bankers.
Inflation has risen sharply since the last hike, peaking at 75 percent in May. However, it has since slowed, reaching 49.4 percent in September and the benchmark rate falling below 50 percent for the first time.
Turkey's central bank left interest rates unchanged in October and warned that rising inflation had added to uncertainty, a signal that could strengthen views that monetary policy easing will not come before the start of the new year.
Although financial conditions have already tightened, Walsh said the central bank needs to further strengthen its communication and that more rate hikes may be needed if the bank is to really reach its inflation target of 14 percent to the end of 2025
The IMF expects inflation in Turkey to reach 24 percent by the end of next year, which is close to the result of a Reuters poll, which forecast inflation at the end of 2025 to be 25 percent.