Minimum Wage Is Set.. It’s Time for Policy Interest Rate.

Minimum Wage Is Set.. It’s Time for Policy Interest Rate.

 

The country is waiting for several major decisions to be announced soon. The first is the CBRT’s rate decision, the second is the new road map in economy, the third is the minimum wage, and the fourth is the wage hikes in the public sector.

 

The new minimum wage was announced yesterday. Along with the hikes in government employee wages, it will be the determinative factor in many economic activities. Wage hikes determine the cost of labour in government organisations and agencies, the minimum wage, on the other hand, will increase the costs in real sector employment. For further details about this issue, you may visit my YouTube channel to watch a video that I shared yesterday.

 

The CBRT policy rates will dictate the funding costs and the future of exchange rates, and together with Turkey’s new economic plan, it will give us an idea about the future performance of the country’s credit rating, its CDS premiums and macroeconomic parameters.

 

In the past, people used to be quite excited about the announcement of a new economic programme, and as economists, we would get plenty of question about the details of that programme. After 2018, with the introduction of ambitious but unrealistic goals, the public’s interest has slowly disappeared, only remained the media’s attention. The public started to show more interest in other matters that directly concern them, such as tax amnesty, building amnesty, wage increases, retirement regulations, government aid, etc.

 

Today in Turkey, depositors want interest rates to go up, business people want interest rates to go down, exporters want exchange rates to increase further while tradesmen want them to fall, workers want wage hikes, employers want wages not to rise too much. Given these facts, we should know that there is no solution to satisfy all these different demands. If the Government had tried to solve these problems by attacking the root causes of inflation in the first place, their job would have been easier today.

 

“A Common Expectation…”

 

Personally, I do not believe that a drastic rate hike under the circumstances will help reduce inflation and it might even affect growth negatively. It would be more fruitful for the Government to end putting pressure on exchange rates and advise the CBRT to announce of a solid plan to replenish its foreign currency reserves instead of raising interest rates.

 

Despite the rapid rise after the elections, a substantial number of people think that the current level of the exchange rates seems unrealistic and that they are still being interfered with by the Government. Frankly, I too am guessing that there still could be some pressure on exchange rates and I am having a hard time understanding what purpose this pressure serves.

 

As for the exporters’ demand from the Government to let exchange rates go gradually up, I would like to remind them of an inevitable and devastating consequence, “High exchange rates might be good, when things are going well. But, given the current economic situation, it will end in disaster”.

 

Actually, the only thing that exporters demand is “low costs and predictable future”. In fact, this is the demand of every citizen in this country.

 

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