Turkey raises minimum wage as lira crashes, inflation sows difficulties | Business and Economic News

Turkey will raise its minimum wage by 50 percent from next year.

Turkey is raising its minimum wage by 50 per cent starting next year as households across the country see rising inflation and the pound fall.

President Recep Tayyip Erdogan made the announcement at a televised press conference on Thursday, saying the policy change would lead to the largest 50-year minimum wage increase.

The boost boosts Turkey’s minimum wage from 2,826 pounds ($ 182) to 4,250 pounds ($ 275) and will directly affect 6 million workers.

“We are determined to put an end to the uncertainty that has arisen with the fluctuations in the exchange rate as soon as possible and with the excessive rise in prices,” Erdogan said. “We will decide the future of this nation together with men and women, young and old, workers and employers.”

Erdogan also said the government will remove the minimum wage income and stamp duty.

Turkey’s economic fortunes have come in January with heavy inflation this year and a pound crash that has seen the Turkish currency lose more than half its value against the U.S. dollar since early January.

The country’s official inflation rate was 21 percent last month, four times the target rate set by Turkey’s central bank. But members of Turkey’s political opposition and some economists say the official rate is likely to underestimate the real rate of price increases.

“According to [independent inflation research group] ENAG inflation is around 60 percent, so this increase in the minimum wage is more or less in line with inflation, “said Harun Ozturkler, a professor of economics at Kırıkkale University, Al Jazeera. still.

The lira fell to an all-time low on Thursday, after the Turkish central bank cut interest rates by a full percentage point to 14 per cent, the fifth such reduction since September.

Reducing interest rates goes against the economy in the face of rising inflation, as lowering borrowing costs typically reduces the value of a currency.

But Erdogan stresses that lower interest rates will fight inflation, boost economic growth, power exports and create jobs. In the last two years, he has removed three governors from the Central Bank of the Republic of Turkey (CBRT). He also stressed that foreigners and their domestic allies are sabotaging the Turkish economy.

“President Erdogan has continued to urge the hard-cleaned CBRT to prove the need for lower interest rates to bring down inflation in his unorthodox opinion,” senior economist in emerging markets at Capital Economics told clients Jason Tuvey on Thursday, adding. “The currency is on track for its worst annual profit since 1995!”

The central bank, which has sold dollars several times to consolidate the lira in recent weeks, said in a post-meeting statement that the current easing cycle is over.

With elections scheduled for 2023, Erdogan said before Thursday that he would continue to push for lower borrowing costs.

But some economists believe the minimum wage hike announced on Thursday indicates that it could happen ahead of the election.

“This also shows that the government is likely to run in the 2022 election,” Ozturkler told Al Jazeera. “One of the most important factors affecting the chances of Turkish voters is the minimum wage, and the government knows that.”