Turkey Holds Interest Rates Steady

Turkey’s central bank kept interest rates unchanged for the third consecutive meeting since the outbreak of the Iran war, as policymakers monitor economic slowdown and rising energy costs.

The Monetary Policy Committee, led by Governor Fatih Karahan, maintained the one-week repo rate at 37% on Thursday. The overnight lending rate was also kept unchanged at 40%, which has become the central bank’s main funding tool since the conflict began.

The decision was in line with expectations from most economists surveyed by Bloomberg, who anticipated no change in borrowing costs.

By keeping rates at current levels, Turkish policymakers signaled confidence that monetary conditions remain tight enough to support efforts to control inflation while limiting the economic impact of the regional conflict.

Turkey, a major importer of oil and natural gas, has faced higher energy costs following disruptions around the Strait of Hormuz. The increase in energy prices contributed to annual inflation accelerating for a second consecutive month, reaching 32.6%.

Although some economists argue that seasonally adjusted indicators point to improvement in underlying consumer price trends, many expect annual inflation to end the year near 30%, above the central bank’s forecast of 26%.

The central bank recently introduced measures to restrict credit growth, while first-quarter economic data indicated a slowdown in activity.

Some analysts had expected a rate increase to offset the impact of the Middle East conflict and recent domestic political uncertainty, which pushed the central bank to spend around $13 billion defending the Turkish lira.

Analysts at ING said they expect limited room for monetary easing in the second half of the year, projecting the policy rate could fall to around 35% by year-end, while risks remain tilted toward a tighter monetary stance.

Turkey continues to balance inflation control, currency stability, and the economic fallout from higher global energy prices as the Iran conflict adds further uncertainty to the outlook.