Türkiye holds interest rate steady at 37% amid geopolitical risks

The Central Bank of the Republic of Türkiye announced Thursday its decision to maintain the one-week repo auction rate at 37%, opting for stability amid escalating regional conflicts and volatile global market conditions. The monetary authority also held the overnight lending rate at 40% and the overnight borrowing rate at 35.5%, signaling a cautious approach to monetary policy in an increasingly uncertain international environment.

According to the bank's statement, "the underlying trend of inflation was essentially flat in February," providing justification for the steady rate. However, policymakers acknowledged mounting external pressures, noting that "as uncertainty heightened amid geopolitical developments, global risk appetite deteriorated and energy prices increased." The assessment reflects growing concerns about spillover effects from the ongoing US-Israeli military campaign against Iran, which has disrupted energy markets and threatened broader regional stability since Feb. 28.

Coordinated policy approach

The central bank emphasized that decisions supporting tight monetary policy have been implemented alongside coordinated fiscal measures designed to contain risks to the inflation outlook. This integrated approach aims to address both monetary and fiscal dimensions of price stability, recognizing that external shocks require comprehensive policy responses. The statement underlined that the tight monetary policy stance will strengthen the disinflation process through multiple transmission mechanisms, including demand management, exchange rate stability, and inflation expectation anchoring.

Gradual policy normalization continues

Thursday's decision represents a continuation of the gradual policy normalization path that began in 2025. Starting from 45%, the central bank progressively reduced rates throughout the last year, reaching 38% before the final decrease to 37% at the first monetary policy meeting of 2026. The current pause reflects policymakers' assessment that maintaining the existing rate provides appropriate support for disinflation while allowing time to evaluate the impact of geopolitical developments on domestic economic conditions. As Türkiye navigates complex regional dynamics, including its role in NATO and relationships with conflict-affected neighbors, the central bank's cautious stance demonstrates commitment to price stability amid extraordinary external challenges.