Turkey's Central Bank Likely to Keep Interest Rates Steady at 37%

Central Bank Meeting Overview#

The Central Bank of the Republic of Türkiye is anticipated to keep its policy interest rate at 37% during its upcoming Monetary Policy Council meeting, as reported by analysts from Bank of America. This decision comes amid various economic challenges facing the country.

Economic Challenges and Foreign Reserves#

Turkey is dealing with a significant drop in foreign exchange reserves, which have decreased by about $21 billion recently, not including the impact of gold reserves. This decline raises concerns about the country's financial stability, especially with potential inflationary pressures linked to ongoing tensions in the Middle East.

Current Banking Conditions#

Despite the economic pressures that might typically lead to higher interest rates, Bank of America analysts believe a rate increase is unlikely at this moment. Recent data indicates a slight decrease in foreign exchange deposits, contrasting with a trend of increased dollarization that followed events in March 2025. The banking sector is currently experiencing a liquidity shortage, allowing the central bank to provide financing to banks at a 40% overnight lending rate, while the one-week repo rate remains suspended at 37%. This situation gives the central bank more flexibility to manage local interest rates without needing to raise the policy rate.

Future Outlook on Currency and Oil Prices#

Analysts caution that the Monetary Policy Council might still consider raising interest rates to strengthen currency support. The Turkish lira's forward rates have dropped by about 10 percentage points since Monday, influenced by easing oil prices and the central bank's management of the USD/TRY exchange rate. Future currency pressures are expected to be closely tied to oil prices, with UBS analysts predicting Brent crude could average around $80 per barrel in March, potentially dropping to the mid-$70 range if tensions in the Middle East de-escalate. However, prices could exceed $100 per barrel if disruptions continue in the Hormuz Strait.