Turkish banks preparing to increase their loan rates

ISTANBUL

Rising geopolitical tensions and surging oil prices are reshaping global monetary policy, with Türkiye preparing for significant interest rate hikes as banks brace for higher commercial and consumer loan costs.

The financial impact of the war that began after the United States and Israeli strikes on Iran on Feb. 28 is becoming clearer, with rising oil prices and global inflation concerns reshaping monetary policy. Brent crude has settled above $100 per barrel, fueling expectations of tighter measures by central banks worldwide and delaying hopes for interest rate cuts.

In Türkiye, banks are preparing to raise commercial loan rates by 5–6 points, pushing them to around 50 percent, as new credit limits open on March 30. This increase is also expected to affect consumer loans, making borrowing more expensive for households.

The Central Bank of Türkiye has already taken steps to contain inflationary risks. On March 2, it raised funding costs, lifting the effective policy rate from 37 percent to nearly 41 percent through corridor adjustments. At its March 12 meeting, the bank signaled further tightening if inflation worsens, effectively shelving expectations of a rate cut in April.

Banking executives explain that the main reason behind the expected hikes is to curb demand for foreign currency. Excess Turkish Lira liquidity from loans often flows into dollar purchases, which erodes reserves and fuels inflation. One senior banker noted: “The Central Bank does not want credit-driven lira to shift into foreign exchange. This is a measure to protect reserves and stabilize inflation.”

Economists stress that the rise in loan rates is not surprising but rather the natural outcome of current conditions. A chief economist commented: “Funding costs have risen. You cannot sell at a loss. Ultimately, interest rates will rise — it is the result we expected.”

Senior banking executives in Türkiye say the expected rise in commercial loan rates is aimed at controlling demand for foreign currency. A top manager from the treasury unit of a private bank said that the Central Bank has been focusing heavily on protecting foreign exchange reserves. “Even the slightest upward move in the dollar directly feeds inflation, and the Central Bank’s main goal is to rein in inflation. That’s why, whenever there is pressure on the exchange rate, it uses its reserves. The Central Bank does not want excess lira created through loans to flow into foreign currency. The planned increase in commercial loan rates is essentially a precaution to prevent a situation that could harm the wider economy,” the executive explained.

Another senior banker highlighted that large institutions using credit often shift into foreign currency, which drains reserves and complicates the fight against inflation. “This naturally makes inflation control more difficult. Measures like interest rate hikes will continue as long as war risks persist. If tensions between Iran and the U.S. ease or end, such steps will be gradually reduced,” the banker said.