What the bank did
Turkey's Monetary Policy Committee, chaired by Governor Fatih Karahan, kept the one week policy rate at 37% on Thursday, in line with the near-consensus from a Bloomberg survey of 19 analysts. In August, the central bank eased borrowing costs by rolling back an effective hike to 40% that had been introduced at the outset of the war to contain its economic fallout.
Why they held fire
Inflation slowed to 31.5% in August, a softer print that had many looking for a reduction this month. Even so, officials noted a deceleration in the underlying inflation trend and weaker domestic demand, while warning that pricier energy tied to geopolitics could tilt the outlook. On Wednesday, Brent crude topped $100 per barrel - its first breach of that mark since July - while tensions between Iran and the US escalated near the Strait of Hormuz.
"Elevated energy prices amid geopolitical developments pose an upward risk to the inflation outlook," the statement said. Earlier this month, at an inflation-outlook presentation, Karahan said the worst of the war related economic risks had passed. Because Turkey is a major energy importer, it is especially vulnerable to increases in oil and gas costs and their pass-through to transport and utilities.
Market reaction and analyst views
Traders took a cautious stance. The BIST 100 banking index fell as much as 1.2% and by 2:45 p.m. in Istanbul was down 0.3%. The lira hovered near unchanged at 48.49 against the US dollar.
Plenty of economists now think a reduction could come next month, even if September inflation picks up. "The direction of oil prices is very important. As long as there isn't a new sharp surge, it's possible that we might see a rate cut at the next meeting on Oct. 22," said Altan Aydin, a fund manager with Perform Portfoy.
When markets feel uncertain, steady planning helps protect and grow your savings. Join Briefs Finance CEO Jaspreet Singh on September 29th for a FREE live investor workshop, How to Profit From A Dollar That's Losing its Value, where he shows how we're spotting investment opportunities as the dollar falls. Save your spot.
"That meeting will be held before the US Federal Reserve's meeting, just like in September. That's why Fed expectations could also be a determining factor." "Should there be no significant deterioration in the inflation outlook and energy prices start retreating, the odds for a 100bps cut in October meeting is high," said Erkin Isik, QNB Turkey's chief economist. He had said before the decision that a "strong rise in energy prices" would likely lift September monthly inflation above 2%, compared with 1.8% in August.
Selva Bahar Baziki of Bloomberg Economics projects September monthly inflation at 3%. "We expect policymakers to cut rates at the remaining two meetings as they put more weight on weakening growth in their assessments," she wrote after the decision. "The recent escalation in the Middle East, however, raises the risk of a relatively tighter path."
What it means for your portfolio
This pause comes down to a balancing act: inflation is easing, but energy just got more expensive. That keeps Oct. 22 and the oil tape front and center for where borrowing costs go next. If you're watching the knock-ons for loan rates or the lira's buying power, those two signals will likely matter more than the noise in between.
A thoughtful long term approach keeps your money aligned with your long term goals. Our CEO Jaspreet Singh is hosting a FREE live investor workshop, How to Profit From A Dollar That's Losing its Value, on September 29th. Sign up free to join him live.
