ANKARA, March 12 (Xinhua) -- Türkiye's central bank kept its key policy rate unchanged at 37 percent on Thursday, pausing an easing cycle that began last year as rising inflation and tensions in the Middle East complicate the country's economic outlook.
The Monetary Policy Committee left the one-week repo rate steady after cutting it by 100 basis points in January.
In a statement, the bank said geopolitical tensions had increased uncertainty, weakened global risk appetite and pushed energy prices higher. It added that the impact of these developments on inflation and economic activity was being closely monitored.
The decision came after new data showed inflation rising for the first time in several months. Annual consumer inflation climbed to about 31.5 percent in February from 30.7 percent in January. Monthly inflation slowed to 2.96 percent, but remained high.
Analysts said the bank is becoming more cautious as higher energy prices and regional tensions make the inflation outlook less certain.
"The latest inflation figures show that the disinflation process is fragile, especially given the increase in energy prices," said Senol Babuscu, a banking expert at Ankara's Baskent University. "Under these conditions, the central bank chose to pause rate cuts and watch how external shocks affect domestic inflation."
Hakan Kara, a former central bank economist now at Bilkent University, said on social media platform X that Türkiye had spent about 13.3 billion U.S. dollars to stabilize the lira during a week of global market volatility linked to the U.S.-Israeli strikes on Iran.
The central bank had previously signaled a gradual shift toward lower interest rates after aggressive tightening in 2023 and 2024 aimed at stabilizing prices and the currency.
Central Bank Governor Fatih Karahan earlier said the bank expects inflation to fall to between 15 and 21 percent by the end of the year, with an interim target of 16 percent. February's data highlights the difficulty of reaching that goal.
Babuscu said geopolitical risks are now a key concern for policymakers.
"Conflicts in the Middle East have created uncertainty in global energy markets, and Türkiye is highly sensitive to energy prices because it relies heavily on imports," he said.
Financial markets had widely expected the bank to pause rate cuts. Recent global volatility has also prompted Turkish authorities to intervene in foreign exchange markets and tighten liquidity, pushing overnight funding costs higher.
Atilla Yesilada, an Istanbul-based economist, said the bank is trying to balance economic growth with the fight against inflation.
"The central bank is walking a tightrope," he said. "The economy still needs manageable borrowing costs, but inflation remains far above the target. Cutting rates too quickly could weaken confidence in the disinflation program."
Analysts suggest the bank could still reduce rates later this year if inflation stabilizes. Achieving such stability, however, will demand careful policy decisions.
"The pause shows the central bank remains cautious," Babuscu said. "In the current environment, credibility is just as important as the policy rate itself." ■
