Turkey Holds Policy Rate at 37% as Expected

The Central Bank of Turkey kept its policy rate unchanged at 37%, as expected, along with the overnight lending rate at 40% and borrowing rate at 35.5%. It said underlying inflation eased in March, though early indicators suggest a slight pickup in April. Energy prices remain elevated and volatile due to geopolitical risks, adding uncertainty to the inflation outlook. While economic activity shows signs of slowing, the bank warned that recent developments could still feed into inflation through costs and expectations. The central bank reiterated that tight monetary policy will be maintained until price stability is achieved, with a focus on supporting disinflation via demand, exchange rate and expectations channels. It also signaled readiness to tighten further if inflation worsens, while continuing to monitor liquidity conditions and financial stability risks as it works toward its medium-term 5% inflation target.

The Central Bank of Turkey held its benchmark policy rate at 37% in its March 2026 meeting, aligned with recently revised market consensus as the central bank was widely expected to continue cutting interest rates until the outbreak of war in the Middle East triggered a surge in energy prices and raised the outlook inflation for major economies. It was the first hold following five consecutive cuts, reflecting policymakers' heed to the impact that higher energy prices may have on the Turkish economy. The central bank had already been forced to intervene in foreign exchange markets earlier in the month to contain the slide in the lira, and suspended one-week repo auctions, which lifted the lira interbank overnight reference rate by 300bps to nearly 40%. The central bank continued to see underlying inflation as stable as of February, and signaled it will see the impact of geopolitical developments on the economy before deciding possible policy responses.

The Central Bank of Turkey cut its benchmark policy rate by one percentage point to 37% in its first meeting of 2026, less than the median market expectations of a 1.5 percentage point cut, but still marking the lowest rate since November of 2023. The central bank noted that the underlying inflation trend softened in the end of last year despite the increase in the headline rate due to higher food prices, warranting a slight reduction in tight monetary conditions. Still, policymakers stressed that upside risks to inflation remain, as unpredictable pricing behaviour and elevated inflation expectations continued to pose risks to the disinflation process.