The International Monetary Fund has warned Türkiye of the risks that may arise from a gradual approach to combating inflation. He invited her to Continue to tighten monetary policy and rely on data until inflation approaches the target rate.
This came in a statement by the Fund after a routine visit to member states known as Article IV consultations.
The Fund stated that Türkiye needs to accelerate its efforts to combat inflation and take “larger and more focused” steps to reduce the budget deficit. He recommended the necessity of adopting coordinated financial, monetary, and internal policies to deal with inflation. The Fund added that linking wages to inflation expectations rather than previous inflation could significantly help in curbing prices.
Increase the minimum wage
According to Bloomberg, the increase in the minimum wage for the year 2025 is receiving great attention from international banks, such as Deutsche Bank, which expect the increase to reach between 25% and 30%.
It is noteworthy that Turkey increased the minimum wage twice in 2023 to confront the worsening living crisis in the election year, but it was limited to raising it only once in 2024, despite the demands of trade unions and opposition parties.
Since the re-election of President Recep Tayyip Erdogan in May 2023, Turkey has followed an economic transformation in which the central bank raised the interest rate to 50% from 8.5% in an attempt to reduce inflation. Despite this tightening, recent data showed that the inflation rate fell slower than expected in September to 49.4%, due to continued rise in prices and rising costs of services.
Fund recommendations
The fund said that the shift in policy reduced economic imbalances and restored confidence, adding that improved sentiment in the market resulted in a shift in the interest of foreign and local investors to assets denominated in the lira.
In its statement, the Fund stressed the necessity of continuing to follow strict data-based monetary policies until inflation reaches the target levels. He also recommended strengthening the monetary policy transmission mechanism, the independence of the central bank, and enhancing communication to improve policy credibility, according to Bloomberg.
The statement added the need to “gradually stop measures related to capital flows” as liquidity risks in foreign currencies decline and inflation declines. The Fund also urged Türkiye to “focus macroprudential policies on containing systemic risks.”
