The minimum wage in Turkey, faced with inflation of more than 84% over one year, will be raised on January 1 to 8,500 Turkish liras (TRY) net (about 455 dollars), for the third time in a year, announced Thursday 22 December President Recep Tayyip Erdogan.
More than 40% of Turks live on the minimum wage.
The latter stood at 2,826 pounds at the end of December 2021, or just under 300 dollars at the time.
It had been raised to 4,253 TRY last January and 5,500 in July, insufficient to live in large cities like Istanbul.
"Critical Period"
Acknowledging that the country is going through a “
critical period
”, less than six months from the presidential and legislative elections scheduled for next spring, Mr. Erdogan promised the “
rapid decline in inflation from the end of the month
”.
“
We are determined to reduce inflation by 20% by the end of next year
,” he promised.
The unions had demanded 9,500 TRY per month but the Head of State indicated that it had not been possible to reach an agreement.
“
After a series of meetings, alas, employees and employers could not agree on an amount
” declared the president, judging the “
reasonable compromise
”.
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Consumer price inflation already slowed in November in Turkey for the first time since May 2021, to 84.4% year on year from 85.5% the previous month, according to official data.
A group of independent economists, however, estimates that the real inflation rate is more than double, while the Turkish currency has lost almost 30% of its value over the past year.
The Turkish central bank kept its main key rate stable at 9% on Thursday, after four months of consecutive cuts, following the wishes of the Turkish president and despite inflation.
Contrary to traditional economic theories, the head of state, who will seek re-election next June, asserts that high interest rates encourage inflation.
Slow growth
With inflation at 84.39%, banks risk losing over one year 75.39% of the value of a loan made at the official interest rate.
According to observers, this discrepancy risks crippling lending and significantly slowing growth in Turkey.
“
Economic growth will continue to slow in the first half of next year, and it is very possible that President Erdogan will put pressure on the (central bank) to ease its policies even more before the elections next year.
“, Estimated Nicholas Farr, of Capital Economics, in a note sent to its customers.
According to the analyst, attempts by the Turkish government to induce exporters to sell dollars and international funding sources have helped stabilize the Turkish lira in recent months.
"
But that's not sustainable and we expect it to fall around 20% against the dollar by the end of 2023
," the analyst added.