Overview
Turkey's central bank opted to maintain its key policy rate at 37% on Thursday, marking the third successive meeting without an adjustment. Alongside the benchmark decision, the bank left its overnight lending rate at 40% and its overnight borrowing rate at 35.5%.
Rate corridor and liquidity approach
The institution continues to operate a rate corridor - with the overnight lending rate at 40% and the overnight borrowing rate at 35.5% - which it uses to influence market funding costs when needed without altering the official benchmark rate. The bank had paused an easing cycle that began in late 2024 after the war started at the end of February. Subsequent liquidity measures taken since that pause have resulted in the lira overnight rate moving up to the 40% ceiling.
Inflation environment and outlook
Energy prices have risen in the wake of the conflict, a development the bank said has placed upward pressure on economies that rely heavily on imports, including Turkey. Latest figures show inflation in Turkey at 32.61% last month. In May, the central bank published its quarterly inflation report and raised its interim end-2026 inflation target from 16% to 24%.
Central bank messaging
In its commentary the bank indicated it expects the short-term inflationary effects of the Iran war to remain "pronounced". Policymakers are therefore keeping the policy stance steady while using the rate corridor and liquidity operations to manage market funding conditions.
Implications noted
The announcement keeps the official policy rate unchanged while preserving tools to adjust market funding costs through the corridor and liquidity measures. The central bank's updated interim target and its characterization of inflationary impacts as "pronounced" underscore the factor that the conflict-related energy price shock is a central consideration for monetary policy going forward.