Turkey: Central Bank holds rates in March
Central Bank adopts wait-and-see approach: At its meeting on 12 March, the Central Bank of the Republic of Turkey (TCMB) kept its 1-week repo rate at 37.00%. This followed 900 basis points of rate cuts since last June.
Elevated inflation and uncertain outlook drive hold: The TCMB kept rates unchanged to assess the aggressive monetary easing seen in the last nine months, and in a context of inflation which rose to 31% in February—one of the world’s highest rates. Moreover, the war in Iran and the subsequent jump in energy costs pose upside risks to Turkey’s inflation outlook, further motivating a pause in the Bank’s easing cycle.
TCMB to cut rates further: Our panelists anticipate further monetary easing later this year in line with declining price pressures. The spread among panelists’ end-2026 forecasts is large at 800 basis points though, reflecting uncertainty over the outlook for inflation. Moreover, interest rate hikes could occur if inflation doesn’t decline as expected.
Panelist insight: Goldman Sachs analysts said:
“The TCMB suspended repo auctions following the outbreak of conflict in Iran, which effectively corresponded to a 300bp rate hike. We see no reason for the TCMB to reduce its policy rate while the effective funding rate remains 300bp higher. At the same time we believe the TCMB is unlikely to raise its policy rate, as it likely considers the shock from the Iran conflict to be temporary.”
ING’s Muhammet Mercan said:
“Overall, the decision to keep the policy rate unchanged appears to reflect the continued preference of domestic residents for liradenominated assets and the view that foreign outflows have been driven by global risk aversion rather than interest rate levels. The decision also suggests that the CBT aims to preserve flexibility to resume rate cuts should the impact of the energy shock prove shortlived. However, if elevated oil prices persist and continue to weigh on the inflation outlook, the Bank may consider additional tightening – either through a policy rate increase or a widening of the corridor.”