Turkey keeps key interest rate at 37 percent

As expected, the Turkish central bank has left its key interest rate unchanged at 37%. This was decided by the Monetary Policy Committee on April 22. The overnight rate also remained stable at 40 percent. In its statement, the central bank pointed out that the underlying inflation trend had declined in March. However, early indicators pointed to a slight increase again in April. The monetary watchdogs are primarily monitoring the high and highly volatile energy prices and their impact on costs, the economy and inflation. Energy prices remain the key risk Analysts assume that the central bank will wait and see. William Jackson from Capital Economics explained that the Turkish central bank is likely to leave interest rates unchanged for a few more months unless energy prices rise significantly again. He believes that a resumption of the easing cycle is possible in the third quarter. His forecast: the one-week repo rate could reach 33% by the end of 2026. In fact, the effective financing rate is currently already higher than the key interest rate. Since March 1, the central bank has suspended its one-week repo auctions. As a result, commercial banks have to rely more heavily on overnight financing. The weighted average refinancing costs and the market interest rate TLREF are therefore around 40 percent. Inflation outlook remains uncertain Official consumer price inflation fell to 30.87% year-on-year in March, down from 31.53% in February. Nevertheless, expectations for the end of 2026 remain elevated. In February, the central bank had already raised its inflation forecast for the end of 2026 to a range of 15 to 21%. It had previously expected 13 to 19 percent. In view of higher energy prices, market participants could now expect significantly higher figures. The central bank's next inflation report will be published on May 14. The central bank should then update its assumptions on energy prices and inflation. Oil price assumptions under pressure In February, the central bank was still forecasting an average Brent oil price of around 60 dollars per barrel for 2026. According to previous estimates by the central bank, a 10% rise in the oil price would increase overall inflation by around 0.8 percentage points. Finance Minister Mehmet Şimşek presented a significantly higher assumption in London at the beginning of April: Turkish government economists expect an average Brent price of 85 dollars per barrel in 2026. This could increase inflation by 3.6 to 4.4 percentage points by the end of 2026. At the same time, the USD/TRY exchange rate has so far remained under control. Following the easing of the situation in the Middle East, portfolio inflows into Turkey also increased again. Next meeting in June The next interest rate meeting will take place on June 11. Most observers currently expect no change. However, if the inflow of capital stabilizes, an interest rate cut of 100 basis points could be back on the agenda. Before the latest regional escalation, the central bank had already begun its cycle of interest rate cuts. The key interest rate fell to 37% in January, down from 46% in July 2025. The rate remained unchanged at the March meeting. The post Turkey keeps key interest rate at 37 percent appeared first on ostwirtschaft.de.