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JPMorgan has postponed its expectations for interest rate cuts by the Central Bank of the Republic of Türkiye (CBRT), citing renewed military tensions in the Middle East and oil prices approaching $100 per barrel.
The U.S. investment bank moved the two 100-basis-point cuts it had previously expected in September and October to the CBRT's October and December meetings.
JPMorgan said the central bank's effective funding cost was likely to remain at 40% until the geopolitical crisis eased, delaying the normalization of its operational funding framework.
The bank, however, said the CBRT's emphasis on weakening domestic demand indicated that policymakers retained an easing bias and that interest rate cuts remained the expected direction of monetary policy.
JPMorgan expects the central bank to first restart one-week repo auctions in September, bringing its effective funding cost down from 40% to the 37% policy rate.
It kept its year-end policy rate forecast unchanged at 35% but warned that the balance of risks had shifted toward fewer rate cuts, depending on the duration and severity of the conflict in the Middle East.
Following the CBRT's hawkish decision, market pricing pointed to a policy rate of about 36.6% at the end of 2026 and 34% at the end of 2027, according to JPMorgan.
The bank also said a continued global risk-off environment could make steepening positions in the Turkish lira overnight index swap curve attractive.
A decline in oil prices and an easing of geopolitical pressure, combined with weaker economic activity, could lead markets to price in a more dovish near-term policy path, JPMorgan said.
The bank said the CBRT's continued hawkish stance supported carry-trade transactions and Turkish lira-denominated assets, although medium-term inflation trends and post-election risks could keep Türkiye's eventual interest rate level elevated.
Deutsche Bank also revised its expectations for Türkiye, saying rising geopolitical tensions and energy costs were the main factors behind the CBRT's decision to keep its policy rate unchanged.
In a report authored by economist Yigit Onay, the bank said the CBRT's decision to maintain market funding at the 40% upper limit was directly linked to worsening external conditions.
Deutsche Bank estimated that a rise of more than 35% in Brent crude prices, along with changes to fuel taxation, had added about 1.5 percentage points to Türkiye's inflation outlook through sharp increases in gasoline and diesel prices.
It also pointed to a rise of more than 50% in European natural gas prices and upward pressure on agricultural commodity prices as additional risks to the disinflation process.
The bank raised its year-end inflation forecast from 28.5% to 30% and increased its year-end policy rate projection from 35% to 36%.
Deutsche Bank said the normalization of funding costs from 40% to the 37% policy rate had likely been delayed until September, while direct interest rate cuts may not begin until the final quarter of the year.
Under a more adverse scenario, including Brent crude remaining above $100 per barrel, the full removal of fuel tax exemptions and a widening current account deficit because of higher winter energy imports, the CBRT could be forced to maintain tight monetary policy for longer.
The bank warned that such conditions could delay interest rate cuts until 2027.
A rapid easing of regional tensions, a significant decline in global energy and commodity prices or government measures limiting the domestic impact of energy costs could allow monetary easing to begin earlier, Deutsche Bank said.
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