IMF praises Türkiye’s monetary policy amid ongoing inflation battle

The International Monetary Fund (IMF) is “very impressed” with Türkiye’s tight monetary policy stance to curb inflation, IMF European Department Director Alfred Kammer said on Thursday.

Kammer noted that the financial institution has been “very favorably impressed” by Türkiye’s monetary policy shift since last year, highlighting two significant outcomes: a substantial reduction in vulnerability to crisis risk and a downward trajectory for inflation.

“Those are two huge achievements in this policy pivot regarding our policy advice,” he said during a Regional Economic Outlook for Europe news conference at the IMF Annual Meetings in Washington, D.C.

In related news, the Central Bank of Türkiye announced that it will take the anticipated 25% minimum wage increase into account while shaping its 2025 monetary policy, aiming to align the wage hike with the country’s inflation outlook.

Emphasis on continued tight monetary policy

However, Kammer cautioned that Türkiye has not yet fully won the fight against inflation, emphasizing the need for continued tight monetary policy. He deemed it premature to ease restrictions on monetary policy at this stage.

He also advised a “focus on income policies,” pointing out that past minimum wage increases were based on backward-looking inflation trends. “We need to have these minimum wage agreements, which are currently conducted once a year, done in a forward-looking way to avoid the second-round effects of these measures,” he stated.

Additionally, Kammer called for “more fiscal adjustment,” which he believes would address inflationary pressures and enhance the credibility of adjustment efforts.

“Overall, I should say to the economic team working in Türkiye: A job well done. That job needs to continue, and these policies need to be sustained. This is a painful period for the population of Türkiye and a tough time for policymakers, but it is necessary to mitigate crisis risk and bring inflation down,” he concluded.