By Ezgi Erkoyun and Ece Toksabay
ISTANBUL, April 22 (Reuters) – Turkey’s central bank held its key interest rate at 37% on Wednesday as expected, deciding not to hike but remaining cautious due to Iran war fallout, which it said could change the inflation outlook.
The bank is closely monitoring any “potential second-round effects” on inflation, for which “leading indicators suggest a slight increase in the underlying trend in April,” its policy committee said.
“Amid geopolitical developments and the resulting uncertainties, energy prices remain elevated and exhibit notable volatility,” it added.
The central bank halted its easing in March, citing the conflict’s potential impact on inflation. Since the war started, the bank has not opened one-week repo auctions, pushing the lira overnight rate up to 40% — the upper band of its corridor.
It kept overnight rates unchanged on Wednesday.
In a Reuters poll, 19 of the 23 economists surveyed predicted no change to borrowing costs, while four forecast a rate hike. Before the regional conflict began shifting expectations, the central bank had been expected to continue a rate-cutting cycle that began in late 2024.
The war-related surge in energy prices has rattled import-heavy economies like Turkey where inflation was 30.87% last month. On Tuesday, U.S. President Donald Trump extended the war ceasefire indefinitely.
Economists generally anticipate that rate cuts may resume in September.
Rising inflation expectations has led to an upward revision in year-end rate forecasts, with the Reuters poll predicting it be cut to only 32.75% by year end.
The median estimate for end-2026 consumer price inflation now stands at 27.53%, compared with 25.38% in the previous poll.
A year ago, the central bank temporarily reversed course and hiked rates in the face of political instability that rattled markets, though it returned to rate cuts by mid-2025.
Before the decision there had been an expectation among some bankers of a 300‑basis‑point hike, which would formalise the de facto tightening in the overnight rate, given the rising external and domestic imbalances.
In its quarterly inflation report in February, the central bank kept its end-2026 interim inflation target at 16%, while lifting its forecast range to 15-21% from 13-19% previously.
The Reuters poll, conducted between April 15-20, pointed to a slowdown in the easing cycle, with the policy rate seen at 32.75% by end-2026, up from the previous survey. The rate was predicted to dip to 28% by mid‑2027.
Economic growth is expected to be 3.2% this year before picking up to 4% in 2027, the poll also showed. In its three-year economy roadmap, the government expects the economy to grow 3.8% this year and 4.3% next.
Turkey’s current account deficit is expected to narrow to 2.3% of GDP this year and 2.1% in 2027, according to the poll.
(Reporting by Ezgi Erkoyun and Ece Toksabay; Writing by Daren Butler; Editing by Jonathan Spicer )
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