Rising energy costs triggered by the latest conflict in the Middle East are reshaping monetary policy outlooks across economies, delaying anticipated interest rate cuts.
Concerns over the inflationary impact of higher oil prices have led investors to push back expectations for easing, with the U.S. Federal Reserve now seen holding rates steady until at least July. Similarly, prospects for near-term cuts in the United Kingdom and Türkiye have diminished.
The Central Bank’s Monetary Policy Committee (MPC) is scheduled to convene for its second meeting of 2026 on March 12. On Jan. 22, the bank lowered its one-week repo auction rate from 38 percent to 37 percent, a smaller move than the 150-basis-point reduction widely expected by economists.
Analysts now believe the bank will pause at the upcoming meeting. JPMorgan, for instance, forecasts that the Central Bank of Türkiye will keep the policy rate unchanged at 37 percent.
ING also said in a recent report that current developments point to a complete halt to rate cuts at the March meeting, with a focus on maintaining FX stability.
Domestic markets have already priced in this shift. At the start of the week, banking stocks led declines on the BIST 100 index as expectations for a March rate cut faded. Prior to the escalation in the Middle East, February inflation data — showing a monthly increase of 3 percent — had fueled predictions of a 50 to 100 basis point cut on March 12. Current forecasts, however, suggest the easing cycle will resume later in the year rather than this month.
Market experts point to the Central Bank’s cautious stance under Governor Fatih Karahan, who has consistently emphasized data-driven decision-making.
Onur Can Bal of Gedik Investment Advisory said the bank’s determination to fight inflation has become clearer in recent weeks. “If not for the war, we would have expected a limited cut of around 100 basis points in March. Given the latest developments, I now anticipate a pause,” he explained.
Following the U.S.-Israeli strike on Iran, the Central Bank announced new measures earlier this week, including the suspension of one-week repo auctions and the introduction of Turkish Lira-settled FX forward selling transactions to stabilize liquidity and prevent volatility.
Info Investment strategist Çağlar Toros described the move as a “covert rate hike,” reinforcing expectations of no cut in March.
Altan Aydın, portfolio manager at Perform Portföy, highlighted that every 10 percent increase in oil prices adds roughly one percentage point to domestic inflation. He argued that if crude prices settle near $60 in the second half of the year, the inflationary impact will be limited. “This is more of a delay than a reversal. I expect the rate-cutting cycle to continue throughout 2026,” he said.
