CBRT Kept Key Rate Constant at 37% Despite Inflationary Risks
Bottom Line: Central Bank of Turkiye (CBRT) held the policy rate constant at 37% during the MPC meeting on June 11 despite inflationary risks as economy remains under pressure from Iran war, which sparked a surge in energy, transportation and agricultural input costs. CBRT stated in its written statement that energy prices remain volatile due to geopolitical developments, while domestic demand is weakening. CBRT added that it will tighten policy if the inflation outlook deteriorates significantly.
Figure 1: CPI, Core Inflation (YoY, % Change) and Policy Rate (%), January 2018 – June 2026
Source: Continuum Economics
Despite the deceleration trend in inflation halted in April and May coupled with inflationary risks growing, Central Bank of Turkiye (CBRT) held the policy rate constant at 37% on June 11 for a third-straight meeting. Turkish economy remains under pressure from regional friction involving Iran, which sparked a surge in energy, transportation and agricultural input costs.
In its written MPC statement, the CBRT said that Q1 data pointed to a slowdown in economic activity, while leading indicators suggested a continued weak course in domestic demand. The CBRT noted that in case of a significant and persistent deterioration in the inflation outlook, monetary policy stance will be tightened. To stabilize the lira (TRY), the CBRT has implemented an aggressive liquidity strategy, providing market funding at 40% and effectively bypassing its 37% benchmark rate.
It appears the ongoing conflict involving Iran remains a primary determinant for the Turkish economy. Considering fragile truce between the U.S. and Iran is now tested with a new round of air strikes, the situation in Iran remains volatile and this continued instability poses a threat to the Turkish economy particularly given the country’s heavy reliance on energy imports.
We expect the CBRT to approach interest-rate adjustments with caution on a meeting-by-meeting basis, particularly given the conflict in Iran. Under these circumstances, both geopolitical uncertainties and domestic dynamics remain significant risks to the inflation outlook. If the conflict persists, the CBRT could be forced to re-evaluate the need for a rate hike at the next MPC meetings.