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Central Bank of the Republic of Türkiye (CBRT) kept its key funding rate at 37% on Thursday for a fifth consecutive meeting as renewed pressure on oil prices clouds the disinflation outlook amid renewed U.S.-Iran fighting, adding to already elevated fuel costs driven higher by hefty refinery margins.
The decision is in line with market expectations, as the bank’s Market Participants Survey released earlier this month also put the expected policy rate, which represents the annual rate charged on one-week repo funding, at 37%.
The bank recently returned to funding the market through its regular one-week repo auctions in late August, after suspending them on March 1 for nearly six months.
During the pause, the CBRT met liquidity needs through overnight funding at the upper band, effectively keeping market funding costs near 40%.
"Despite monthly fluctuations, recent inflation figures and leading indicators suggest that the underlying trend of inflation is decelerating," the central bank’s statement said, taking a more confident view than in July, when it indicated that the underlying inflation trend had "slowed somewhat" and that leading indicators pointed to a "temporary rise in July."
The committee also pointed to economic activity and limited pass-through from supply shocks as evidence of weak domestic demand. "Data on economic activity as well as the limited pass-through of supply shocks to domestic prices confirm the weakness in domestic demand," it said.
However, the statement noted that fresh tensions between the U.S. and Iran have added another inflationary risk through energy markets. "Elevated energy prices amid geopolitical developments pose an upward risk to the inflation outlook," the committee warned.
Türkiye's inflation slowed to 31.5% in August, with the monthly price change remaining largely steady at 1.8% from the previous month. Seasonal factors keeping food and clothing prices in check offset a 5.5% increase in energy costs, with food prices up just 0.2% and clothing and footwear prices down 3.9%.
Adding to the complexity of the picture, global oil prices are pushing domestic fuel prices to new highs as refinery margins also climb. Türkiye’s largest refinery, Tupras, reported a 13% rise in its diesel margin to $84.7 per ton in August, while its gasoline margin increased 6% to $46.6 per ton.
With the latest hike in early September, gasoline stands 14.4% higher than a month earlier, while diesel is up 9.7%, despite the government offering temporary relief by cutting diesel’s special consumption tax (SCT) to zero in August. The tax was restored at ₺3 per liter on Sept. 1 and is set to rise by another ₺3 each month through December.
Local brokerage Alnus Investment said the CBRT’s emphasis on a slowing underlying inflation trend could leave room for rate cuts, even as its warning on elevated energy prices points to a more cautious path in the near term.
The brokerage expects two rate cuts by year-end if inflation continues to improve before the October meeting. If geopolitical risks intensify, inflation trends worsen, or financial conditions remain unsupportive, however, the next cut could be pushed back to Dec. 10, 2026.
Tacirler Investment also pointed to the CBRT’s return to weekly repo auctions, which had lowered the effective funding rate by 300 basis points, and said the bank will likely want to see how that easing feeds through to market rates before making another move.
"The current environment, in which geopolitical tensions have risen again and Brent oil has exceeded $100, requires external developments to be monitored for some more time," Tacirler Investment said.
The CBRT’s next scheduled Monetary Policy Committee meeting is on Oct. 22, followed by the final meeting of 2026 on Dec. 10.
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