Central bank expected to keep key interest rate unchanged
The Turkish central bank is expected to keep its key interest rate unchanged at 37% at its meeting on March 12. All ten economists surveyed by Reuters anticipate this, following recent geopolitical tensions in the Middle East that have led to significant market turmoil.
According to Capital Economics, the central bank has already responded decisively to the market turbulence. It intervened in the foreign exchange market to prop up the lira and suspended one-week repo operations.
These measures have effectively already tightened monetary policy conditions, the analysts explained. Given the rise in inflation in January, a further rate cut therefore appears unlikely. While a rate hike cannot be ruled out, the most likely scenario is that monetary policy will remain unchanged.
Easing cycle could pause
Prior to the recent geopolitical escalation, many market observers had expected the central bank to continue the easing cycle it began in late 2024.
Monetary easing had been temporarily suspended after political developments and market instability caused turbulence. Shortly thereafter, 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 now stands at 29.75%. In the previous survey, economists had expected around 28%. Some analysts did not want to commit to a forecast given the current uncertainty.
Energy prices as a risk factor
Analysts are also warning of the potential impact of rising energy prices on the Turkish economy. Since the country is heavily dependent on energy imports, higher oil prices could further fuel inflation.
ING estimates that a 10% increase in the oil price could raise 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 about $4 to $5 billion, the analysts explained.
This article was produced in cooperation with our partner bne intelliNews
