Turkey’s central bank said Thursday that it could tighten monetary policy again if the inflation outlook worsens, a warning that comes as the war involving Iran is pushing up energy prices and adding new risks for an economy that already faces a high cost of living.
In a letter to Treasury and Finance Minister Mehmet Şimşek, the Central Bank of the Republic of Turkey said it would tighten its policy stance if there is a “clear deterioration” in the inflation outlook, meaning the bank is leaving the door open to raising interest rates again, if price increases start to accelerate.
The message stood out because the bank had cut its main interest rate to 37 percent in January after a year that included both rate cuts and an emergency tightening phase. The letter said the bank lowered its policy rate in early 2025, raised it again in the spring when market risks grew, then cut it to 38 percent in December and to 37 percent in January 2026.
The central bank did not announce a fresh rate increase on Thursday. But its warning suggested officials are preparing markets for the possibility of tougher action if inflation comes under new pressure. The bank also said it could take extra steps in credit and deposit markets if developments move outside its expected path.
The letter was published because Turkish law requires that the bank explain why inflation ended 2025 above its target range and what it plans to do next.
The bank said inflation slowed during the year but not as fast as hoped. It blamed food supply shocks tied to drought and frost, high prices in services such as rent and education and administered price increases in items such as tobacco, natural gas and tap water.
The warning comes at a time when the conflict involving US, Israel and Iran is shaking energy markets. Brent crude rose above $119 a barrel on Thursday after attacks on major energy facilities in the region. The European Central Bank said the same day that higher energy costs had forced it to raise its inflation forecast and warned that inflation could rise further if the Middle East conflict continues.
Higher oil and gas prices can spread quickly through Turkey’s economy, raising transport, heating and electricity costs and then pushing up the price of many goods and services.
Şimşek said earlier this week that Turkey’s sliding scale fuel price system would not be sustainable if high oil prices persist because it would weigh on the budget.
