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Turkey raises minimum wage, keeps interest rates unchanged

Inflation is running rampant in Turkey, but the president continues to stubbornly reject higher interest rates.
Chris McGrath/Getty Images

Turkey is finished cutting interest rates in 2022. 

The Turkish Central Bank’s Monetary Policy Committee said Thursday that it would keep its main policy rate at 9%. The bank said that Turkish economic growth is “strong,” but that there are concerns about the global economy. 

“Considering the increasing risks regarding global demand, the committee evaluated that the current policy rate is adequate,” read the statement. 

The committee did not specify what it meant by global demand, but mentioned manufacturing. There is a global supply chain crisis happening at present. 

The Monetary Policy Committee also noted high inflation worldwide, attributing it to “rising energy costs” and “strong negative supply shocks” in food and agriculture. 

Turkey raised its minimum wage by 55% Thursday in response to the inflation and cost of living crisis. 

Why it matters: Turkey’s annual consumer inflation eased to 84.4% last month, but the fall largely stemmed from the statistical effect of the high base the same month last year. Prices rose 2.9% on a monthly basis and the country will likely to face monthly price increases averaging 3% to 4% next year.

Economists typically advocate for raising interest rates to counter inflation by discouraging spending. Turkish President Recep Tayyip Erdogan has long rejected the idea and wants lower interest rates to stimulate growth. 

In January, the Central Bank said it would stop cutting interest rates. However, it reversed course in August and began an easing cycle that lasted through November. 

Despite the interest rate cuts, Turkey’s economic growth slowed in the third quarter of 2023. The high inflation is badly hurting low-income masses in Turkey

Know more: Central banks in the Gulf raised interest rates earlier this month in a move that mirrored the US Federal Reserve’s interest rate hike. 

What’s next: Turkey’s Monetary Policy Committee meets monthly. Thursday’s decision could indicate it will not cut rates further in early 2023. 

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