Bank of America Sees Rising Inflation and Interest Rate Risks for Turkey
Bank of America (BofA) has warned that rising global oil prices are increasing the risks to Turkey’s inflation and interest rate outlook, despite the Central Bank of the Republic of Turkey (TCMB) keeping its benchmark policy rate unchanged at 37 percent.
In a new research note prepared by BofA economist Hande Küçük, the bank said its baseline forecasts remain an annual inflation rate of 29.5 percent and a policy interest rate of 36 percent by the end of the year. However, the report notes that these forecasts face increasing upside risks if oil prices remain elevated.
Higher Oil Prices Could Push Inflation Higher
BofA’s base scenario assumes Brent crude oil will average around 82 dollars per barrel in 2026, falling to approximately 76 dollars during the second half of the year.
However, if Brent crude averages around 94 dollars per barrel for the year, with prices remaining close to 90 dollars during the second half, Turkey’s year-end inflation could rise to between 30 and 31 percent, according to the report.
Central Bank Expected to Keep Rates Steady
Under this higher oil price scenario, BofA expects the Central Bank to keep its policy interest rate unchanged at 37 percent until the end of the year.
The bank also believes the normalisation of the Turkish Lira Overnight Reference Rate (TLREF) could be delayed until the Central Bank’s monetary policy meetings scheduled for September or October.
Inflation Report Seen as Key Event
The report says no new guidance was provided regarding the normalisation of overnight funding rates following the latest monetary policy decision.
Looking ahead, BofA believes the Central Bank’s next Inflation Report, due to be released on 13 August, could provide important signals about future monetary policy if geopolitical tensions ease and inflation risks begin to moderate.
For now, however, the bank believes higher energy prices remain one of the biggest risks facing Turkey’s inflation outlook and could limit the scope for interest rate cuts in the months ahead.
