TRY: CBRT seen pausing as conflict risks build – Standard Chartered

Standard Chartered economist Talha Nadeem argues that the Middle East conflict increases risks to Türkiye’s inflation and external outlook, prompting a more cautious Central Bank of the Republic of Türkiye (CBRT) stance. The bank now expects the CBRT to keep its policy rate unchanged at 37% in March, versus a previously projected 100 bps cut, while maintaining a year-end forecast of 30%.

Conflict risk shifts CBRT rate path

"The Middle East conflict, if sustained, could have ramifications for Türkiye’s economy, ranging from an inflationary impulse via elevated oil prices to spillovers in the external sector (pressure on the current account and the TRY). The Central Bank of the Republic of Türkiye (CBRT) was, therefore, quick to respond after the conflict broke out. Specifically, on 1 March 2026, the CBRT announced the following:"

"1. A suspension of its one-week repo auctions: The CBRT will use the 40% overnight lending rate in its funding operations; akin to a ‘stealth’ hike of 300bps vs the policy rate. The time period of suspension is unspecified."

"2. TRY-settled FX forward selling transactions: The CBRT will conduct TRY-settled FX forward selling transactions to, inter alia, ensure the sound functioning of the FX market."

"The CBRT’s proactive measures have supported the TRY so far and, in our view, set the tone for the 12 March Monetary Policy Committee (MPC) meeting. We now expect the central bank to maintain the status quo, reflecting caution; we had previously expected a 100bps cut to the policy rate."

"Conflict-related risks add to the slowing pace of disinflation. Headline CPI inflation crept up to 31.53% y/y in February from 30.65% in January. Core inflation has also hovered around 33% over the past 12 months, implying some headwinds for disinflation even before the conflict began."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)