Turkey's central bank likely to raise rates amid inflation and political turmoil

Markets are increasingly pricing in an interest‑rate hike by the Central Bank of the Republic of Turkey (CBRT) at its Monetary Policy Committee meeting on 11 June. Overnight indexed lira swaps jumped about 105 basis points on Friday, implying a funding cost near 41.75%, while the weekly repo rate remains at 37% and the effective average financing cost is around 40%.

The bet comes as high energy prices—driven by the Iran‑related disruption of oil and gas supplies—keep inflation elevated, and a domestic political crisis following a court ruling that overturned the 2023 Republican People’s Party (CHP) conference results adds pressure on the lira. State banks intervened by selling billions of dollars to support the currency, but bond yields in local currency have continued to rise.

Analysts from major banks, including JPMorgan, now expect the policy rate to move from 37% to about 40%, with some scenarios suggesting an additional 300‑basis‑point increase. Goldman Sachs cautions that a short‑term hike is uncertain, noting that the CBRT may keep rates unchanged until inflationary pressures intensify further.