The monetary policy committee (MPC) of Turkey’s central bank on June 11 left its main policy rate (one-week repo) unchanged at 37% for a third consecutive time in line with expectations.

The regulator also left its overnight lending rate unchanged at 40%.

Turkey's underlying trend of inflation decreased slightly in May, the MPC said in the statement that accompanied the rates announcement.

Effective rate is 40%

On March 1, the central bank suspended its one-week repo auctions. The authority occasionally scraps or limits one-week repo auctions to push local lenders to the overnight window for the sake of additional tightening within the interest rate corridor.

As a result of the suspension, the central bank’s weighted average cost of funding and market rates (TLREF) rose to 40%. They remain there.

End-2026 inflation expectations point to 30%+

On June 5, the Turkish Statistical Institute (TUIK, or TurkStat) said that Turkey’s consumer price index (CPI) inflation officially edged up to 32.61% y/y in May from 32.37% in April.

On May 14, the central bank raised its end-2026 official inflation “forecast” to 26% in its latest quarterly inflation report from the earlier stated range of 15-21% provided in the previous report released in February.

On August 13, the central bank will release its next quarterly inflation report, the third of 2026. It will include updated forecasts and updates on war impacts.

The central bank also hiked its average Brent oil price forecast for 2026 to $89 from the $60s per barrel provided in the February report.

Based on the central bank’s previous estimates, the authority calculates a headline inflation increase of about 0.8pp per each 10% increase in the Brent oil price.

Stress in the equation 

The USD/Turkish lira (TRY) pair remains under control. After the April 8 Iran war ceasefire was declared, portfolio inflows to Turkey resumed. However, strong inflows that would bring the reserve buffers to the pre-war levels have not been observed.

The court-ordered dismissal of the main opposition Republican People’s Party (CHP) chair, Ozgur Ozel, on May 21, caused two weeks of additional market stress, but it is already something of a fading memory to market players. Ousted Ozel opted to stay in the unlevel playing field allocated to the opposition rather than take any action that would cause any profound political turbulence, thus the finance industry has more or less dropped the domestic political concerns from its calculations.

The state of the local financial markets shows that no big shock or crisis has been produced by any external or domestic political developments. However, strong inflows are also not visible on the horizon.

Next policy rate meeting July 23

On July 23, the MPC will hold its fifth rate-setting meeting of the year. Currently, no change to the benchmark is the main expectation.

Prior to the onset of the conflict in the Middle East at the end of February, the central bank was delivering a rate-cutting cycle. That brought the main policy rate (one-week repo) rate to 37% in January from 46% in July 2025.

Four rate-setting meetings have been held so far in 2026. A 100-bp cut was introduced in January, but since then, the policy rate has been left unchanged across three meetings (March 12, April 22 and June 11).