Significant minimum wage increases threaten inflation in Türkiye, says IMF

Jim Walsh, the head of the International Monetary Fund (IMF) mission in Türkiye, commented on the minimum wage issue during the IMF-World Bank annual meeting in Washington.

In an interview with Reuters, Walsh expressed concern about the potential impact of significant wage increases on inflation expectations. “We hope that such a substantial increase does not occur this year. Our experiences from many countries with high inflation indicate that raising the minimum wage at this rate creates a significant anchor for inflation expectations. Authorities need to find a balance, and they are aware of this,” he stated.

Walsh emphasized the necessity for Türkiye to develop social programs to improve low-wage workers’ incomes. He suggested that this could be achieved through cash transfers or more effective management of government support.

‘Strengthening communication with CBRT is necessary’

Regarding tightening financial conditions, Walsh noted that the Central Bank of the Republic of Türkiye (CBRT) may need to enhance its communication strategy and consider further interest rate hikes to achieve its inflation target of 14%. He stated, “The CBRT has adopted a tightening stance and indicated that it would keep rates steady until it observes a downward trend in inflation.”

However, Walsh pointed out that market expectations vary regarding when the CBRT might implement a rate cut. He remarked, “It is likely too early to discuss rate cuts while inflation remains around 2.5% on a monthly basis.”

Walsh also highlighted that unstable inflation expectations and high energy import needs make Türkiye more vulnerable to potential energy shocks and rapid inflation increases. He suggested that the country could mitigate this vulnerability by increasing its renewable energy production.