Türkiye's central bank left its key interest rate at 37% on Thursday, as expected, keeping it unchanged for a fifth consecutive meeting as it continues to monitor the inflation impact of the Iran war. The central bank said recent indicators suggested that the underlying trend of inflation was decelerating, though elevated energy prices posed an upward risk to the inflation outlook. "The impact of geopolitical developments on the inflation outlook through the cost channel, economic activity and expectations is closely monitored," Reuters quoted the bank as saying in a statement. The lira held steady at 48.4950 against the dollar after the announcement, while the main Istanbul share index was slightly lower. In a Reuters poll, 16 of 17 economists had forecast the policy rate would remain at 37%, while one had expected a 100-basis-point cut. The central bank also did not adjust its overnight lending and borrowing rates from 40% and 35.5%, respectively. The bank uses the rate corridor to adjust the cost of funding to the market, when necessary, without changing the benchmark rate. Last month, the central bank resumed one-week repo auctions, which had been suspended since March in order to control the inflationary impact of the Iran war. Overnight interest rates, which had remained at around 40% since the suspension, fell by 300 basis points. The war-related surge in energy prices has rattled import-reliant economies such as Türkiye, where inflation was 31.51% last month. In the latest inflation report, the central bank raised its inflation forecast for the end of 2026 to 28%, from 26%. The government sees inflation at 28.4% at the end of this year. Economists continued to expect monetary easing over the remainder of the year, but are closely monitoring new tensions in the region and their impact on inflation.
