- BIST10012,151-0.94%
- USD49.34+0.24%
- EUR55.21-0.01%
- GOLD4,186.40-0.10%
- INTEREST37.00%-1.00
- BITCOIN81,358-0.48%
- October 13, 202617°
- BIST10012,151-0.94%
- USD49.34+0.24%
- EUR55.21-0.01%
- GOLD4,186.40-0.10%
- INTEREST37.00%-1.00
- BITCOIN81,358-0.48%
- October 13, 202617°
Central Bank to Announce Interest Rate Decision This Week Amid Iran War Impact
The Central Bank of the Republic of Turkey will announce its new interest rate decision this week under the shadow of rising energy prices caused by the Iran war. Markets expect the rate to remain steady at 37%, though a hike is not entirely ruled out.
The Central Bank of the Republic of Turkey will hold a critical Monetary Policy Committee meeting this week under the pressure of energy prices rising after the Iran war. The decision will be announced on June 11, clarifying whether the policy interest rate will remain at 37%.
The meeting takes place at a time when the war has sharply pushed global oil prices upward. This development has made the inflation outlook more cautious in countries dependent on energy imports.
What did the May inflation data show?
According to official data, consumer prices increased by 1.71% month-on-month in May. Annual inflation was recorded at 32.61%.
This rate was below the 4.18% monthly increase recorded in April. However, annual inflation rose above the previous month's 32.37% level.
Data from the Turkish Statistical Institute showed that education and housing items stood out in the annual increase. Transportation, as well as food and non-alcoholic beverages, also saw above-average rises.
What might the Central Bank do?
Market expectations are shaping around the Central Bank not changing the interest rate at this meeting. Economists consider maintaining the current 37% level as the most likely scenario.
However, the possibility of a rate hike remains on the table. Some economists predict the policy rate could be raised by 300 basis points to 40%.
Last month, the bank raised its year-end inflation target from 16% to 24%, emphasizing that the short-term price effects caused by the Iran war would remain significant in the decision.
Inflation message from Minister Şimşek
Following the May data, Treasury and Finance Minister Mehmet Şimşek stated that geopolitical risks and volatility in energy prices are pressuring the inflation outlook. He noted that measures taken have limited these effects.
At the beginning of the week, Şimşek also emphasized that the disinflation target has not been abandoned. Thus, the economic management highlighted a message of price stability despite increasing external pressures.
How are analysts' expectations shaping?
In a survey by financial services company Matriks, 27 out of 33 economists predicted the interest rate would remain unchanged. Six economists expressed expectations of a rate increase.
ING's assessment also expects no change in the rate under current conditions, noting that geopolitical uncertainties and domestic developments could lead to a more cautious stance. The institution stated that in this case, the policy rate could be raised toward the current effective funding level of 40%.
Before the Iran war, Turkey had reduced inflation from levels above 80% at the end of 2022 to around the 30% range. However, the pressure created through the energy channel by the war has made the new decision period more sensitive.
The European Central Bank is also expected to meet the same week. Markets are pricing in a possible rate hike by the bank due to accelerating inflation in the eurozone.
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