Turkey's central bank kept its key interest rate on hold as escalating conflict in the Middle East caused energy prices to rebound and stoked inflation fears.
The bank held its benchmark one-week repo rate at 37.0%, it said Thursday. The bank last cut its key rate in January.
After a peace deal between the U.S. and Iran in mid-June temporarily tempered inflation expectations, the recent resumption of hostilities has upended hopes that energy prices would stabilize in the second half of 2026.
"While the [central bank] has offered hints that it would like to begin cutting rates, it continues to stress caution in its approach," said Andrew Birch, associate director of European economics at S&P Global Market Intelligence.
Turkey imported around 71% of the energy it needs as of 2024, according to the International Energy Agency, making the country particularly exposed to rising oil and natural-gas prices.
The central bank in May sharply raised its inflation forecasts, projecting inflation to end the year at 24%, up from its prewar forecast of 16%. It also lifted its 2027 and 2028 projections to 15% and 9%, respectively, from 9% and 8%.
In June, inflation declined to 32.1%, its lowest reading since the war began.
The bank said that while the underlying trend of inflation fell slightly in June, leading economic indicators point to a temporary pickup in July.
It added that it would continue to closely monitor the impact of geopolitical developments on the inflation outlook.
"The Bank may begin to lay the foundation for a rate cut in the fourth quarter if inflation continues to fall in the coming months," S&P's Birch said.
The central bank also left the overnight lending rate and the overnight borrowing rate at 40% and 35.5%, respectively.
Write to Don Nico Forbes at don.forbes@wsj.com
(END) Dow Jones Newswires
July 23, 2026 07:30 ET (11:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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