Turkish Central Bank Holds Rates Unchanged, Erdogan Raises Minimum Wage By 55%

Turkey's central bank left its key interest rates unchanged on Thursday after lowering them sharply over the past four meetings as President Recep Tayyip Erdogan in Ankara raised the monthly minimum wage by nearly 55 percent to support households reeling under the pressure of rising cost of living and sky-rocketing inflation.

The Monetary Policy Committee of the Central Bank of the Republic of Turkey decided to hold the policy rate at 9.00 percent, as widely expected. The bank has lowered the policy rate by a cumulative 500 basis points since August despite inflation rising persistently. In November, consumer price inflation remained near 85 percent.

"Considering the increasing risks regarding global demand, the Committee evaluated that the current policy rate is adequate," the bank said in the statement.

The MPC said it expects disinflation process to start on the back of measures taken and decisively implemented for strengthening sustainable price and financial stability along with the resolution of the ongoing regional conflict.

Conditions need to be maintained for preserving the growth momentum in industrial production as well as the positive trend in employment in a period of increasing uncertainties surrounding global growth as well as further escalation of geopolitical risks.

Earlier on Thursday, President Erdogan announced a 54.5 percent hike in the monthly minimum wage, during a televised statement, in a bid to help people cope with soaring inflation. The government has raised the wage three times in the past year.

With political pressure driving central bank decision making and President Erdogan recently suggesting that rates should remain in single-digits with the 2023 elections approaching, the central bank will not deliver the hikes that are desperately needed to control inflation and regain credibility anytime soon, Capital Economics economist Nicholas Farr said.

Even if interest rates are not lowered further, the central bank's deeply negative real policy stance and precarious external position means that the lira is highly vulnerable to a large adjustment, the economist noted.