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British economist Timothy Ash said the Turkish lira’s resilience against the shock from the Iran conflict marked an important success for Türkiye’s economic management, but warned that conditions no longer supported expectations for renewed interest-rate cuts in 2026.
Ash argued that the Central Bank of the Republic of Türkiye (CBRT) may instead face pressure to tighten monetary policy further at its next meeting, adding that he already believed monetary policy should remain tighter for longer.
Ash recalled that earlier analyses had expected the Turkish lira to come under severe pressure if a U.S.-Iran conflict erupted alongside an energy crisis, yet the currency remained relatively stable even at the peak of tensions in March.
"They managed to keep the exchange rate stable and preserve the current system without increasing the policy rate. That is a significant success," Ash told CNBC-e.
Following the outbreak of the war, policymakers suspended one-week repo auctions and intervened in the market by selling U.S. dollars from the central bank’s reserves to defend the Turkish lira.
As a result, funding rates rose to 40%, while the bank’s net dollar sales approached $60 billion before market pressure eased, allowing reserves to recover partially.
Ash nevertheless cautioned that prolonged geopolitical tensions and persistently high oil prices could eventually force policymakers to reconsider the current exchange-rate regime and broader monetary strategy.
Ash said Türkiye’s disinflation process was likely to progress more slowly than previously expected and argued that year-end inflation near 30% appeared more realistic under current conditions.
Addressing complaints from exporters over the strength of the lira, Ash rejected devaluation as a solution, arguing that Türkiye’s high exchange-rate pass-through would eventually fuel inflation again.
Instead, he pointed to structural reforms and better demand management as more sustainable solutions for reducing inflation. "No country in the world can fight high inflation without sacrificing growth," Ash stressed.
Ash argued that instability in the Middle East could create long-term opportunities for Türkiye as Gulf countries reassess security-centered economic models.
He pointed to Türkiye’s defense industry and regional position as strategic advantages, highlighting potential trade corridors through Saudi Arabia, Jordan and Syria. Reconstruction efforts in Ukraine and Syria could also benefit Turkish companies, he noted.
He also praised Treasury and Finance Minister Mehmet Simsek, saying he had "done a good job."
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