Turkey's central bank held its one-week repo rate at 37.0% on Sept. 10, extending a pause in easing that dates to January as the war in Iran keeps Brent crude above $100 a barrel. The CBRT raised its 2026 year-end inflation forecast to 28% from 26% in August, and ING expects two 100 basis point cuts in the fourth quarter to take the policy rate to 35%.
Turkey's central bank left its one-week repo rate at 37.0% on Thursday, extending a pause in easing that has run since January, as Brent crude above $100 a barrel keeps energy costs feeding into an inflation rate the bank now expects to end 2026 at 28%.
"Slightly lower-than-expected August CPI data helped maintain a downtrend in the annual figure, though the pace of disinflation is quite slow," economists at ING, led by Muhammet Mercan, said in a note. "Uncertainty surrounding oil prices — along with their spillover effects on other commodity prices — continues to pose risks to the inflation outlook."
The Monetary Policy Committee, chaired by Governor Fatih Karahan, also held the overnight lending rate at 40% and the overnight borrowing rate at 35.5%. The decision matched the near-unanimous consensus in a Bloomberg poll of 19 analysts. The bank last cut the benchmark in January, and in August it raised its 2026 year-end inflation forecast to 28% from 26% while keeping a 24% interim target.
The hold keeps Turkish borrowing costs among the highest in the Group of 20 and leaves the lira's carry appeal intact, but it also extends the squeeze on domestic credit and equities. The BIST 100 closed 0.62% lower at 14,416 on Thursday. Turkey's 2-year yield sat at 36.33% and the 10-year at 31.76%, a curve that prices only gradual easing ahead.
Turkey imported about 71% of the energy it consumed as of 2024, according to the International Energy Agency, which makes the country unusually exposed to the crude rally tied to the war in Iran. Brent traded at $102.68 a barrel and WTI at $97.24 on Thursday, levels that push up transport, utility and input costs across the economy.
The bank said domestic demand remains weak and that it sees limited evidence of higher energy costs passing through to consumer prices so far. That assessment is what keeps a cut on the table at all. ING expects the policy rate at 35% by the end of 2026, implying two 100 basis point reductions in the fourth quarter.
The last time the CBRT held rates through a quarter of rising energy prices, in the second half of 2023, it followed with a 500 basis point hike in August of that year rather than a cut, and the lira weakened about 30% against the dollar over the following six months. The difference now is a real policy rate that is clearly positive, which gives Karahan room to wait that his predecessor did not have.
Restrictive policy has drawn public complaints from Turkish industry. An industry group called in June for an urgent credit package to offset high financing costs, a signal that the transmission from the 37% policy rate to corporate balance sheets is already biting. Bank lending rates near the policy rate leave little room for the investment spending that drives domestic demand.
The lira's reaction was muted, with the currency holding recent ranges against the dollar, because the hold was widely expected. The more consequential signal sits in the front end of the curve: 2-year yields at 36.33% sit below the policy rate, a configuration that only makes sense if investors expect easing within the next 12 months.
The next test comes with September inflation data in early October, followed by the CBRT's next scheduled rate decision. A monthly print above 2% would push the year-end 28% forecast out of reach and force the bank to hold again in the fourth quarter, extending the pause into 2027. A softer reading would open the door to the first cut since January, with ING's two 100 basis point reductions as the base case.
This article is for informational purposes only and does not constitute investment advice.
