Turkey’s central bank kept its policy rate at 37 percent on Thursday, extending a pause in interest rate cuts as inflation remained above 30 percent and energy prices posed a risk to the disinflation program.
The bank also left its overnight lending rate at 40 percent and its overnight borrowing rate at 35.5 percent. The decision was in line with market forecasts.
Thursday’s decision marked the fourth consecutive meeting at which the bank kept the one-week repo rate unchanged. The bank cut the rate from 38 percent to 37 percent in January and then left it unchanged in March, April, June and July.
Annual consumer inflation eased to 32.11 percent in June from 32.61 percent in May, according to official data from the Turkish Statistical Institute (TurkStat). The policy rate, therefore, stands 4.89 percentage points above the latest annual inflation rate, although borrowing costs faced by companies and consumers remain higher than the benchmark.
The bank said domestic demand remained weak and economic activity continued to slow. It also cited the effect of geopolitical developments on costs, activity and expectations and pledged to tighten policy if the inflation outlook showed a lasting deterioration.
Turkey imports most of its oil and natural gas, leaving consumer prices and the current account exposed to energy price increases. The war on Iran has added pressure through fuel costs, the exchange rate and inflation expectations.
The central bank raised its interim inflation target for the end of 2026 to 24 percent from 16 percent in May and said it expected inflation to end the year at 26 percent. June inflation remained more than 6 percentage points above that forecast.
The bank began easing policy in late 2024 after holding the benchmark rate near 50 percent to contain an inflation surge that peaked above 75 percent in May 2024. The next rate decision is scheduled for September 10.