What to Expect from the Turkish Economy for the Remainder of 2026

As Turkey navigates through 2026, significant changes in its economic landscape are anticipated. Following the recent escalation of the Iran conflict, the Central Bank of Turkey has raised the effective policy interest rate by three points, marking a shift towards the upper band of its established corridor. This move raises questions about the trajectory of interest rates for the remainder of the year. Experts, including Professor Selva Demiralp from Koç University, have provided insights into the potential implications for Turkey's economy. The Central Bank's decision to increase interest rates comes at a time when a reduction in rates was expected throughout the year. This unexpected hike is likely a response to the heightened economic uncertainties resulting from geopolitical tensions. The inflationary pressures exacerbated by the Iran war may compel policymakers to reassess their strategies, as maintaining economic stability becomes increasingly challenging. Professor Demiralp suggests that while the Central Bank aims to lower rates to stimulate growth, the current economic environment may not permit such easing. Instead, the focus may shift towards managing inflation and ensuring that financial markets remain stable in the face of external shocks. The delicate balance between fostering growth and controlling inflation will be a critical theme for Turkey's economic policy in the upcoming months. Looking ahead, the anticipated interest rate cuts may still occur later in the year, depending on how the geopolitical situation evolves and its impact on domestic economic indicators. The Central Bank's future decisions will likely hinge on a combination of international developments and internal economic performance. Investors and consumers alike will be closely monitoring these changes, as they will significantly influence the overall economic climate in Turkey.