War-driven oil shock pushes up loan rate expectations in Türkiye

ISTANBUL

The war centered on Iran has begun to reshape borrowing costs in Türkiye, with banking sources saying some lenders are preparing to raise commercial loan rates by 5 to 6 percentage points from the start of next week.

The expected move comes as higher oil prices add to inflation concerns and push back hopes of looser monetary policy both globally and at home. Brent crude has traded above $100 a barrel during the conflict, while market pricing in the United States has shifted away from rate cuts and toward the risk of a Federal Reserve hike later this year.

Banking sources told daily Hürriyet that some banks had already been unable to extend commercial loans for some time because of a 2 percent growth cap. With new limits due to open on March 30, some lenders are now preparing to lift commercial loan rates to around 50 percent, they said, adding that consumer loan rates could also rise.

Market participants say the move is hardly a surprise. With funding costs rising and inflation risks intensifying, the outlook for cheaper credit has weakened both in Türkiye and abroad.

The Central Bank already moved on March 2 to limit the impact of volatility in domestic markets, suspending one-week repo auctions and pushing the average funding cost to 40 percent, the level of its overnight lending rate. In the summary of its March 12 policy meeting, the bank said it would monitor the effects of its steps and signaled that monetary policy could be tightened further if the inflation outlook deteriorates significantly and persistently.

A senior treasury executive at a private bank told Hürriyet the expected increase in commercial loan rates was also aimed at curbing demand for foreign currency. According to the executive, the central bank remains focused on protecting reserves and does not want excess lira liquidity created through credit to spill over into forex demand, which could in turn feed inflation.

Another senior banking executive said large corporate borrowers shifting into foreign currency had become a drain on reserves and was making the fight against inflation harder. The executive said such measures could continue while war-related risks remain high, but may be eased gradually if tensions between Iran and the United States fall.