Turkey's central bank holds key rate at 37% for fifth straight meeting

Turkey's central bank kept its benchmark policy rate unchanged at 37% on Thursday, matching market expectations and marking a fifth consecutive meeting without a change. The decision is widely viewed as the final pause before the bank begins lowering borrowing costs later this year.

In its statement, the bank said recent data pointed to a slowdown in the underlying trend of inflation, even as high energy prices continued to pose an upside risk. It added that the effect of geopolitical developments on the inflation outlook — through costs, economic activity and expectations — was being watched closely.

A survey of economists had largely anticipated the hold, with most expecting no change and only a minority projecting a cut. Economists expect the easing cycle to start at the policy meetings in October and December, with roughly 200 basis points of reductions priced in.

The bank also left its overnight lending and borrowing rates untouched at 40% and 35.5%. That corridor allows policymakers to influence funding costs in the market without adjusting the benchmark rate. Last month, the central bank restarted one-week repo auctions that had been suspended since March to contain the inflationary effects of the Iran war. Overnight rates, which had hovered near 40% during the suspension, have since fallen by 300 basis points.

The war-driven jump in energy prices has weighed heavily on import-dependent economies such as Turkey, where inflation stood at 31.51% last month. In its latest inflation report, the central bank lifted its end-2026 forecast to 28% from 26%, while the government projects inflation will ease to 28.4% by the end of this year.

Markets showed little immediate reaction. The lira was steady at 48.4950 against the dollar after the announcement, while Istanbul's main share index traded slightly lower. Investors remain focused on regional tensions and their potential to feed through to prices and the policy path.