Turkey keeps key interest rate at 37 percent

As expected, the Turkish Central Bank left its key interest rate unchanged at 37 percent. The Monetary Policy Committee made this decision on April 22. The overnight rate also remained stable at 40 percent.

In its statement, the central bank noted that the underlying inflation trend had declined in March. However, leading indicators pointed to a slight increase again in April. Monetary policymakers are closely monitoring high and highly volatile energy prices, as well as their impact on costs, the economy, and inflation.

Energy prices remain the key risk

Analysts expect the central bank to adopt a wait-and-see approach for now. William Jackson of Capital Economics stated that the Turkish central bank is likely to keep interest rates unchanged for several more months, provided energy prices do not rise significantly again. He considers a resumption of the easing cycle possible in the third quarter. His forecast: The one-week repo rate could stand at 33 percent by the end of 2026.

In fact, the effective funding rate is already higher than the policy rate. Since March 1, the central bank has suspended its one-week repo auctions. As a result, commercial banks must rely more heavily on overnight funding. The weighted average refinancing costs and the TLREF market rate therefore stand at around 40 percent.

Inflation outlook remains uncertain

Official consumer price inflation fell to 30.87 percent year-over-year in March, down from 31.53 percent 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 percent. Previously, it had expected 13 to 19 percent. Given higher energy prices, market participants may now anticipate significantly higher figures.

The central bank’s next inflation report is scheduled for May 14. At that time, the central bank is expected to update its assumptions regarding 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 per barrel for 2026. According to the central bank’s previous estimates, a 10 percent increase in oil prices raises overall inflation by about 0.8 percentage points.

Finance Minister Mehmet Şimşek presented a significantly higher assumption in London in early April: Turkish government economists now expect an average Brent price of $85 per barrel for 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 remained under control so far. Following the easing of tensions in the Middle East, portfolio inflows into Turkey have also picked up again.

Next meeting in June

The next interest rate meeting will take place on June 11. Currently, most observers expect no change. However, should capital inflows stabilize, an interest rate cut of 100 basis points could return to the agenda.

Prior to the recent regional escalation, the central bank had already begun its rate-cutting cycle. The key interest rate fell to 37 percent in January, after standing at 46 percent in July 2025. At the March meeting, the rate remained unchanged.