Turkey’s central bank keeps interest rates unchanged, citing the Middle East war’s impact on inflation, which delays the expected disinflation and prolongs pressure on the Turkish lira and domestic equities.
The Turkish central bank’s decision to hold rates steady keeps the lira under pressure as high inflation erodes its value. The Middle East war adds a risk premium, likely driving USD/TRY higher as investors favor the dollar.
With rates on hold and inflation sticky, the lira is expected to gradually depreciate. USD/TRY is likely to target new highs as long as the war premium persists and the central bank refrains from hiking.
A ceasefire would remove a key inflation driver, allowing disinflation to resume and opening the door for rate cuts, which could stabilize the lira and bring USD/TRY lower from overbought levels.
An unexpected rate hike by Turkey's central bank to defend the lira could trigger a sharp reversal, though this is not the base case given political pressure to support growth.
The Middle East war threatens oil supply routes, lifting Brent crude prices. Turkey's proximity to the conflict and its reliance on oil imports amplify the inflation impact, but the primary driver is global supply disruption fears keeping a bid under crude.
The conflict raises the risk of supply disruptions, particularly if key chokepoints like the Strait of Hormuz are threatened. This war premium is pushing Brent prices higher as traders price in an extended standoff.
Oil offers a geopolitical hedge, but gains depend on escalation. If the conflict remains contained, the war premium may fade quickly, so disciplined profit-taking is advised. Positions should be sized accordingly.
High interest rates and geopolitical uncertainty weigh on Turkish equities. The BIST 100 is likely to underperform as elevated borrowing costs crimp corporate earnings and investor sentiment sours, with no near-term catalysts for reversal.
High rates increase financing costs for companies and dampen consumer demand, leading to lower earnings estimates and potential multiple compression for the BIST 100, making equities less attractive.
Not yet; geopolitical uncertainty and inflation keep the risk-reward unfavorable. Entry opportunities may emerge once the conflict shows signs of de-escalation and rate cuts come into view.
Turkey’s central bank kept its benchmark interest rate unchanged, citing the inflationary impact of the ongoing Middle East conflict. The war is impeding the disinflation process by driving up energy and commodity prices, complicating Ankara’s efforts to stabilize the lira and restore price stability. Analysts expect rates to remain elevated through year-end, keeping a lid on growth and asset valuations.
The bank cited renewed inflationary pressures from the Middle East war, which disrupted disinflation progress through higher energy and commodity prices, making premature rate cuts too risky.
The war raises import costs, particularly energy, widening Turkey’s current account deficit and stoking inflation, forcing the central bank to maintain tight monetary policy and delaying economic recovery.
Rate cuts are unlikely before late 2026, contingent on a sustained decline in inflation and de-escalation of regional conflicts; a ceasefire could accelerate the timeline.