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Investing.com -- The Central Bank of the Republic of Türkiye is expected to maintain its policy rate at 37% when the Monetary Policy Council meets today, according to Bank of America analysts.
Turkey faces a challenging economic backdrop, with foreign exchange reserves dropping by approximately $21 billion through Monday this week, excluding the valuation impact of gold reserves. Additional pressure comes from potential inflationary effects stemming from the situation in the Middle East.
Despite these factors that could support monetary tightening, Bank of America believes a rate hike is unlikely at this time. Daily data on foreign exchange deposits show a small decrease, contrasting with the deposit dollarization that occurred following events in March 2025.
The banking system has shifted into a liquidity shortage position, enabling the central bank to finance banks at the 40% overnight lending rate after suspending the one-week repo at 37%. This provides the central bank with improved ability to manage local rates, including deposit rates, without raising the policy rate.
However, analysts note the risk that the Monetary Policy Council could choose to increase interest rates to create additional buffers for currency support.
Turkish lira forward rates have declined by approximately 10 percentage points from Monday’s intraday peak of 47.3% for three-month rates, as oil price pressure eased and the central bank maintained its USD/TRY crawling peg through reserve deployment.
Bank of America analysts suggest currency pressure in coming weeks will largely depend on oil prices. UBS oil analysts forecast Brent prices averaging $80 per barrel in March, potentially falling to mid-$70 per barrel with quick de-escalation in the Middle East. However, Brent could rise above $100 per barrel later in March if Hormuz disruption continues.
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