In a significant shift, Turkey’s central bank has implemented its first interest rate reduction in nearly two years, cutting the benchmark rate by 250 basis points to 47.5 per cent from 50 per cent. The decision, which exceeded market expectations, marks a pivotal moment in the country’s monetary policy trajectory.
The substantial rate cut arrives as annual consumer price inflation has moderated to 47 per cent in November, showing considerable improvement from its peak of 86 per cent in October 2022. The central bank’s decisive move reflects growing confidence in the stabilisation of economic conditions.
President Recep Tayyip Erdoğan’s administration recently announced a modest 30 per cent increase in the minimum wage for the coming year, signalling a departure from previous aggressive wage policies. This measured approach to wage growth has provided the central bank with additional flexibility to adjust monetary policy.
The monetary authority maintains its commitment to a restrictive policy stance, emphasising that future rate decisions will be evaluated on a meeting-by-meeting basis. The bank has also announced a reduction in its policy meetings to eight times in 2025, down from the traditional twelve.
Labour organisations have expressed strong opposition to the new minimum wage of 22,104 lira ($627) per month, with Türk-İş, representing 1.75 million workers, declaring it “unacceptable.” Their calculations suggest a family of four requires at least 20,562 lira monthly to meet basic needs.
The success of Turkey’s disinflation efforts now heavily depends on the government’s ability to fulfil its commitments to fiscal discipline and structural reforms. The central bank’s forecast projects inflation to decrease to 14 per cent by the end of next year, though analysts stress the importance of sustained institutional adjustments to achieve these targets.
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