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Dutch lender ING expects Türkiye’s central bank to hold interest rates steady in April and has raised its 2026 year-end inflation forecast to 27.5% from the previous 25.5%, pointing to mounting risks from energy costs and Iran war-driven geopolitical tensions.
In its latest assessment, the bank economists stressed that uncertainty in global energy markets is amplifying risks to the inflation trajectory, keeping upward pressure on consumer prices.
The report suggested that if geopolitical risks persist, the bank may lean toward a more cautious stance by pushing funding costs closer to 40% to maintain control over inflation dynamics.
The bank also trimmed its growth projection for 2026, lowering it from 3.4% to 3% as tighter financial conditions weigh on economic activity. A weaker contribution from net exports is expected to further restrain expansion, reflecting softer external demand and cost pressures.
The dollar/TL exchange rate is projected to stabilize around 46.6 by mid-year, indicating a relatively balanced trajectory under current conditions.
On the other hand, higher oil prices continue to pose a significant challenge to Türkiye’s external account, with the bank estimating this impact to widen the current account deficit to $54 billion or 3.1% of gross domestic product.
The central bank’s net reserves excluding swaps fell to $18.3 billion in early April, though recent swap operations and partial capital inflows appear to have halted the decline and started to improve the balance, the report added.
After the Iran war began on Feb. 28, the Central Bank of the Republic of Türkiye (CBRT) initially suspended one-week repo auctions based on 37% rate and raised funding costs to 40%. The policymakers also paused the ongoing rate-cut cycle, holding the policy rate steady at 37% at the March meeting.
During the conflict, the central bank pursued market interventions to defend the Turkish lira amid heightened U.S. dollar demand and capital outflows, offloading nearly $60 billion from its net reserves at the peak of the turmoil. It also restarted dollar-lira and dollar-gold swap operations to support liquidity.
As pressures appeared to stabilize in recent weeks amid an ongoing ceasefire between the U.S. and Iran, the bank’s gross reserves posted their first rebound in the week ending April 3, reaching $161.6 billion.
In March, Türkiye's inflation came in at 30.9% with a 1.9% monthly change in consumer prices, with energy prices leading the surge at 4.8%. The country's current balance continued its widening trend in February, reaching $35 billion on a 12-month rolling basis.
Addressing the situation, CBRT Deputy Governor Hatice Karahan said the Middle East crisis is a global supply-side shock and stressed the need to prevent temporary price shifts from turning into persistent inflation.
She noted that policymakers are closely monitoring expectations and exchange rate dynamics, adding that the bank paused its rate-cutting cycle in March while tightening funding conditions to limit second-round effects.
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