CBRT Pauses Easing Cycle; Policy Rate Held at 37% Due to Surges in Oil Prices and CPI Increase in February
Bottom Line: The Central Bank of Turkiye (CBRT) kept its policy rate constant at 37% during the MPC meeting on March 12. This decision effectively pauses the bank’s easing cycle in response to heightened market volatility and rising energy costs driven by the ongoing war in Iran. While February's monthly CPI moderated to 3.0%, annual inflation rose slightly to 31.5%, reinforcing a cautious stance. Committed to a medium-term disinflation target of 5%, the CBRT signalled it will maintain a tight monetary position and assess further adjustments on a meeting-by-meeting basis, closely monitoring risks from deteriorated pricing behaviour, stick inflation and the unpredictable global economic outlook.
Figure 1: CPI, Core Inflation (YoY, % Change) and Policy Rate (%), January 2015 – March 2026
Source: Continuum Economics
After reaching 30.7% annually in January, Türkiye’s inflation rose to 31.5% in February, driven primarily by soaring costs in food, housing, and transportation. Furthermore, the global market experienced significant volatility following the joint U.S. and Israeli military strikes on Iran in late February. Given that Turkiye is a major importer of energy, the CBRT decided to keep the policy rate stable at 37% during its MPC meeting on March 12 to mitigate further inflationary risks.
CBRT said in its written statement that despite a relatively flat underlying trend in inflation in February, the impact of the war on energy prices could prompt interest rates to rise for the first time since April last year. "In case of a significant and persistent deterioration in the inflation outlook, which can also be driven by the recent developments, monetary policy stance will be tightened," the bank added alongside the decision.
Given the CBRT's 5% medium-term inflation target, we think adverse geopolitical developments, sticky domestic inflation and recent hikes in oil and gas prices after U.S./Israel attacks to Iran would likely trigger CBRT to navigate interest-rate adjustments with caution, adopting a meeting-by-meeting approach. We believe any further potential upside surprises in food and energy prices, alongside any accelerated TRY depreciation, could derail the recovery. We consider CBRT will continue rate cuts in 2026 but with a slower pace, as stubborn inflation and adverse global developments will limit the size of the cuts.