Turkey Keeps Key Interest Rate at 37% for the Fourth Time

On July 23, the Central Bank of the Republic of Turkey (CBRT) left its key interest rate unchanged at 37% for the fourth consecutive time. The decision by the Monetary Policy Committee (MPC) was in line with market expectations. The overnight lending rate also remained unchanged at 40%.

In its accompanying statement, the central bank explained that the underlying inflation trend had eased slightly in June. However, leading indicators suggested that this trend was likely to temporarily strengthen again in July.

The central bank cited geopolitical tensions as a major source of uncertainty, noting that these had recently led to another rise in energy prices.

Analysts do not expect an interest rate cut for the time being

William Jackson, chief economist for emerging markets at Capital Economics, sees the central bank’s statement as a signal that no easing of monetary policy is to be expected in the near term.

“Today’s statement from the Turkish central bank makes it clear that policymakers are concerned about the renewed rise in oil prices. This dashes any remaining hopes for interest rate cuts in the coming months,” Jackson explained.

Since Turkey has only limited oil and gas reserves of its own, a rise in energy prices has a particularly strong impact on inflation and the current account.

Inflation Forecast Remains High

According to the Turkish Statistical Institute (TÜİK), consumer price inflation fell slightly to 32.11% in June, down from 32.61% in May.

In its most recent inflation report from May, the central bank raised its forecast for the inflation rate at the end of 2026 to 26%. In February, it had still expected a range of 15 to 21%.

The next quarterly inflation report is scheduled to be released on August 13.

Oil Prices Remain a Key Factor

Following the ceasefire between Israel and Iran on April 8, international capital inflows into Turkey had picked up again. However, with the resurgence of fighting in early July, oil prices once again came under upward pressure.

The exchange rate of the Turkish lira against the U.S. dollar remained largely stable following the interest rate decision.

The next meeting of the Monetary Policy Committee is scheduled for September 10. Market observers expect that further developments in oil prices and the geopolitical situation in the Middle East will be decisive for the future course of monetary policy.

Effective refinancing rate stands at 40%

As early as the beginning of March, the central bank had suspended its one-week repo auctions. With this measure, it is specifically managing the supply of liquidity to banks via the overnight market and keeping effective refinancing costs at a higher level.

As a result, both the central bank’s weighted average refinancing rate and the TLREF reference rate remain at around 40%.

Many analysts expect the central bank to resume regular repo auctions before considering a cut to the official policy rate.