Central bank likely to leave key interest rate unchanged

The Turkish central bank is expected to leave its key interest rate unchanged at 37% at its meeting on March 12. This is the expectation of all ten economists surveyed by Reuters, after geopolitical tensions in the Middle East recently led to considerable market turmoil.

According to Capital Economics, the central bank has already reacted significantly to the market turbulence. It intervened in the foreign exchange market to support the lira and suspended one-week repo transactions.

These measures have in fact already tightened monetary policy conditions, the analysts explained. In view of the rise in inflation in January, a further interest rate cut therefore seems unlikely. Although a rate hike cannot be ruled out, the most likely scenario is an unchanged monetary policy.

Easing cycle could pause

Before the recent geopolitical escalation, many market observers had expected the central bank to continue its easing cycle, which began at the end of 2024.

Monetary easing had been temporarily suspended after political developments and market instability caused turbulence. Shortly afterwards, however, the central bank resumed its gradual interest rate cuts.

According to the Reuters survey, the median forecast for the inflation rate at the end of 2026 is now 29.75%. In the previous survey, economists had expected around 28%. Some analysts did not want to commit themselves at the moment in view of the uncertain situation.

Energy prices as a risk factor

Analysts are also warning of the potential impact of rising energy prices on the Turkish economy. As the country is heavily dependent on energy imports, higher oil prices could also drive up inflation.

ING estimates that a 10% rise in the price of oil could increase consumer price inflation in Turkey by around 1.1 percentage points. Such a price increase could also widen the country's current account deficit by around USD 4 to 5 billion, the analysts explained.

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