Turkiye's central bank halted its easing cycle again and left its key interest rate on hold at 37% on Thursday due to market fallout from the Iran war that it said could impact inflation.
The bank, already facing rising price pressure in January and February, said it was closely watching effects of "geopolitical developments" on the inflation outlook, and it was ready to take more liquidity steps if needed to support markets.
In a Reuters poll, all 10 economists forecast a hold in the benchmark rate. Before the expanding regional conflict began shifting expectations nearly two weeks ago, the bank had been expected to continue a rate-cutting cycle that began in late 2024.
"As uncertainty heightened amid geopolitical developments, global risk appetite deteriorated and energy prices increased," the central bank said, adding it acted in order to "contain the risks posed by these factors to the inflation outlook".
A year ago, the central bank temporarily reversed policy course and hiked rates, though it returned to rate cuts by mid-2025.
On Thursday the bank also left unchanged its band of overnight lending and borrowing rates at 40% and 35.5% respectively. Last week it responded to the volatility by taking liquidity measures that lifted overnight rates to around 40%, up 300 basis points from pre-war levels.
It has also sold around $23bn in foreign exchange to cushion the domestic market from regional turmoil, though it reversed course earlier this week and bought some $2bn-$3bn after global selling pressure eased a bit.
Monthly inflation was near 3% last month, with the annual rate rising to 31.5%, prompting policymakers to predict price relief in March and April.
War-related market volatility prompted Finance Minister Mehmet Simsek to convene the Financial Stability Committee last week, which said it would take all necessary steps to ensure market functioning and contain the fallout.
Economists said that one key factor limiting upward revisions in inflation expectations was a "sliding scale" system, which adjusts the special consumption tax (OTV) on fuel products and prevents higher oil prices from being fully passed through to consumers.
The shift in market expectations also led to an upward revision in year-end rate forecasts, based on the poll. The median estimate for end-2026 now stands at 29.75%, compared with 28% in the previous poll.
The lira was flat at 44.114 against the dollar after the announcement.
