Economy
Markets brace for European, Turkish central banks’ rate decisions
Central banks in Europe and Türkiye are heading into a week where they will deliver their latest decisions on monetary policy amid a fresh dilemma posed by the restart in tensions between the U.S. and Iran, which threaten to fuel energy price volatility and complicate the inflation outlook.
Both the European Central Bank (ECB), which oversees economic policy in the eurozone, and the Central Bank of the Republic of Türkiye (CBRT) are expected to hold interest rates on July 23, as conflict weighs on activity and adds fresh pressure on prices, analysts and polls suggest.
Still, markets would look at hints and predictions on the future inflation outlook for the remainder of the year, as well as for more details on what the policymakers currently consider to be the main sources of the strain.
After becoming the first among major banks to hike rates due to the U.S.-Iran war on June 11, the ECB is due to stay on hold this week but will hike for the second time this year in September as a renewed energy price surge raises the risk of more intense inflation pressures, according to a growing majority of economists polled by Reuters.
A 20% jump in oil prices following a re-escalation of war in the Middle East has prompted markets to price in two more rate hikes this year, compared to one until the cease-fire arrangement between the U.S. and Iran abruptly ended.
The ECB has already raised rates once this year, unlike many of its peers, including the U.S. Federal Reserve (Fed), the Bank of England (BoE) and the Bank of Canada.
While preliminary official data showed eurozone inflation eased to 2.8% in June, that is still above the ECB’s 2.0% target, keeping alive the case for higher rates. But weak growth and limited evidence of second-round effects argue for caution.
All 74 economists in the July 13-16 Reuters poll expected the ECB to leave its deposit rate unchanged at 2.25% next week, in line with market pricing.
A 70% majority of respondents, 52 of 74, expected one more rate hike this year, probably in September, up from around 60% in last month’s poll.
“The ECB probably would have needed to hike anyway, even if we hadn’t had all of this extra noise around the Strait of Hormuz over the past week or so,” said Chris Scicluna, head of economic research at Daiwa Capital Markets.
“Gas prices are significantly higher and electricity power prices are higher as well. The ECB is going to have to take account of this when it next updates its forecast in September. But for now, it will judge there’s no urgency for it to raise rates just yet again.”
Nearly 30% of economists still see rates unchanged for the rest of the year, while only three expect two more hikes.
Policymakers have struck a cautious tone on inflation risks, particularly second-round effects, but have called for vigilance.
“The balance in the Governing Council today is slightly more on the side of the hawkish people, even though everybody knows pretty well that because of the growth momentum we have today in the euro area, they have to be very cautious with a policy rate hike,” said Alain Durre, head of Europe macro research at Natixis.
“It’s very difficult to be confident about anything right now. But it’s very clear to me the higher energy inflation goes … the bigger the risk of second-round effects on wages and subsequently prices as firms raise their prices to pay a higher wage bill,” said Simon Wells, chief European economist at HSBC.
“So yes, if we go into the September meeting with oil at $90 and still highly uncertain about where things are heading with possible upside risks to that, it may well be prudent for the ECB to hike again.”
The eurozone economy contracted 0.2% in the first quarter but was expected to have grown 0.2% last quarter and expand at a similar pace in this one and the next, the poll showed, putting 2026 growth at 0.5%. That marked a fourth straight downgrade to forecasts.
CBRT also expected to stay on hold
The CBRT, which has kept interest rates unchanged at 37% in its last three meetings, in line with expectations, and has not changed the overnight lending and borrowing rates, is similarly expected to remain cautious and keep the policy rate within the same range.
Even though most economists predict that the bank would stay at 37%, some forecasted that the Monetary Policy Committee (MPC) meeting could result in an additional interest rate cut of 100 to 150 basis points, a report by Sabah newspaper said.
According to a survey conducted by Matriks Haber with the participation of 33 economists, 32 of the participants predicted that the policy rate would remain at 37%, while only one economist predicted a 300 basis point cut, bringing the rate down to 34%.
Moreover, the median and average expectations regarding the timing of the first interest rate cut pointed to September.
Türkiye’s consumer price inflation moderated in June to the lowest level in three months, coming in at 32.1%, according to official data.
On a monthly basis, the prices increased 0.99% after rising 1.71% in May, coming in below a 1% rate for the first time since late 2025.
Brazilian assets were trading higher on Monday after right-wing Senator Flavio Bolsonaro, the son of ex-leader Jair Bolsonaro, came in first in the first round of Sunday’s presidential election.
The Bovespa benchmark stock index gained more than 8% and the country’s currency strengthened against the U.S. dollar following the vote.
The eldest son of former President Jair Bolsonaro won 47% of the votes and will face leftist incumbent President Luiz Inacio Lula da Silva, who secured about 45% of the vote, in a runoff on Oct. 25. Polls had forecast Lula would lead the first round of voting by around three percentage points.
Investors cheered on Monday morning as Bolsonaro’s strong showing was matched by gains for his allies in Congress. Analysts say a friendlier legislature would make it easier for him, if elected, to push through a pro-market agenda of tighter public spending, privatizations and tax cuts.
“Brazil wants change,” Bolsonaro said on Sunday evening, heralding the “end of the era of (Lula’s) Workers’ Party.”
Shares in retailer Magazine Luiza, stock exchange operator B3, lender BTG Pactual, homebuilder Cyrela and conglomerate Cosan jumped more than 20% each, putting them among the top gainers.
J.P. Morgan upgraded Brazil’s equities to “overweight” on Monday, saying a more favorable political backdrop after recent election developments had improved the outlook for the region’s largest market and could drive a period of outperformance.
Brazil’s real currency strengthened more than 4% against the U.S. dollar in early trading, moving below 5.00 per greenback, from around 5.22 previously, in line with analyst forecasts and with the currency’s performance four years ago when then-President Jair Bolsonaro did better than expected in the first-round vote against Lula.
The elder Bolsonaro went on to lose to Lula in the second round of that election and was subsequently convicted of trying to carry out a coup to overturn the result. The former president was sentenced to about 27 years in prison and is currently under house arrest.
Brazil’s international debt also rallied on Monday, while broader fixed-income markets were jittery. The 2056 bond was up 1.4 cents on the dollar to bid at 93.5 cents, Tradeweb data showed.
‘The market wants change’
Bolsonaro has pitched himself as a “more centered” version of his father to investors concerned about Brazil’s burgeoning fiscal pressures.
“It remains to be seen whether the senator would ultimately prove more fiscally responsible than Lula would be in a fourth non-consecutive presidential term. However, markets are likely to give him the benefit of the doubt,” said Thierry Larose, portfolio manager at Vontobel.
If he is elected, Bolsonaro would enjoy some room to maneuver with Congress after his Liberal Party emerged as the biggest winner in congressional races on Sunday.
Bolsonaro’s party increased its representation in the Senate from 15 to 28 seats, the strongest result for a party since Brazil’s return to democracy in 1985. It also is projected to secure 121 seats in the lower house, up from its current 98 seats.
“The likelihood of advancing reforms is much greater,” said Pedro Paulo Silveira, an analyst at Terra Investimentos. He noted that during the previous Bolsonaro government, reforms often depended on costly political bargaining or stalled altogether.
Analysts also expect the real to continue strengthening into 2027. Societe Generale forecast that it would move to 5.10 by the end of 2026, with scope to move below 5.00 in the first half of 2027. Morgan Stanley forecast the real could strengthen past 4.90 and toward 4.50 in the first quarter of next year.
“The market wants change, it wants reform; it doesn’t want a high public deficit; with the current government, all of this will continue,” said Pedro Galdi, investment analyst at the AGF Investments platform.
Bolsonaro’s strong showing is likely to boost market confidence in the near term, said Bryan Harris, a managing partner at Sabio.
“The market will be looking for clear signals from Bolsonaro that he is serious about tackling the country’s problems,” Harris said.
Heading into Sunday’s vote, most private polls, which largely underestimated the younger Bolsonaro’s strength, had shown the 45-year-old senator and Lula, who will turn 81 later this month, about even in a runoff vote.
Addressing a crowd at a hotel in Sao Paulo, Lula said he had been convinced he would win the election in the first round.
“Starting tomorrow, we begin a new campaign,” the leftist leader said, promising to show voters what he had accomplished as president.
Kryvyi Rih, the hometown of Ukrainian President Volodymyr Zelenskyy, is struggling to survive. Russian airstrikes have brought the city’s huge steel plant and mines to a standstill, dragging the local economy to its knees.
Mayor Oleksandr Vilkul said the sprawling industrial city – which stretches along the banks of the Inhulets River – was doing everything possible to ensure its hospitals remain open, the lights remain on in kindergartens and schools, and buses keep running.
“In Kryvyi Rih, the situation is actually worse than anywhere else, apart from the front line itself,” Vilkul, 52, a former mining executive, said in a video address.
The financial squeeze on the city of about 600,000 people underlines the challenges facing Ukraine as the government navigates its biggest budget crisis since Russia’s full-scale invasion in 2022.
Last month, the city’s largest employer – ArcelorMittal’s hulking mining and steelmaking complex – suspended its operations following a series of Russian ballistic missile strikes that darkened its furnaces.
The prospects for next year, Vilkul said, are bleak.
“It’s about survival. Right now, we need to survive,” he said.
It’s a scene played out across Ukraine’s once-mighty steel industry, which accounted for a tenth of economic output before the war. Giant mills in Zaporizhzhia in the southeast and other industrial cities stand silent and exports have stopped.
An escalation in Russia’s drone and missile strikes this summer destroyed factories and warehouses across Ukraine, damaged ports and railways, and forced shops and businesses to close, slowing the growth of the economy and tax revenue.
Meanwhile, the technology-driven war is becoming ever more expensive for Ukraine to fight.
Billions of euros in foreign loans have been delayed by failure to pass bills including unpopular tax reforms and anti-corruption legislation demanded by Ukraine’s Western allies, leaving a gaping hole in state coffers.
Ukraine needs $56 billion to fund that gap this year – equivalent to about a quarter of its economic output. Of that, $27 billion is military spending.
To bridge the shortfall, Ukrainian officials met European partners in Brussels last week to discuss bringing forward disbursements due next year under a 90-billion-euro ($101-billion) EU loan. The European Commission and Ukraine said they had identified funds to close the gap this year.
But three sources familiar with the talks said accelerating these payments risked increasing budget pressure next year – at a time when looming election campaigns in European allies including France and Poland could erode support for Kyiv.
Prime Minister Sergii Koretskyi acknowledges the situation is “challenging.” The government has been forced to freeze nonessential spending – including reconstruction of damaged buildings and infrastructure – to prioritize military spending, public sector wages and pensions.
“All resources should be channeled into critically important areas,” Koretskyi told reporters.
War costs soar, domestic revenues fall
Two years ago, a single day of fighting cost Ukraine $140 million, but that figure has jumped to $190 million, according to Roksolana Pidlasa, the head of parliament’s budget committee. And that does not include direct military support to Kyiv from its Western allies.
Rising costs are driven partly by the need for expensive medium- and long-range weapons capable of striking Russia’s oil refineries and military factories to reduce Moscow’s ability to continue its war.
Plus, the wage bill for an expanded army is higher than ever before, and the state must support a growing number of military families of disabled or deceased soldiers.
“Expenditure will continue to rise,” Pidlasa told a conference in Kyiv. “This is one more pragmatic reason why the U.S. and Europe need to act faster to force (Russia) to end this war.”
In the first nine months of this year, Ukraine spent more than $44 billion on defense alone, data showed. That does not include in-kind military support from allies.
In the same period, the government was able to raise only about $42 billion in tax revenue as the economy slowed.
Pidlasa said that in the first nine months of this year, Ukraine’s budget lost over 49.5 billion hryvnias ($1.1 billion) in tax revenue because of Russian attacks that not only damaged property and goods, but disrupted logistics and shut shops and businesses for hours at a time.
By the end of the year, the cumulative losses could rise to 70 billion hryvnias, the government estimates.
“We have not a temporary but a structural problem with the revenues at the very time when spending really requires resources,” said Oleksandra Myronenko, an economist at the Center for Economic Strategies, a Kyiv-based think tank.
Some Ukrainian businesses have started to scale back operations. Others have put capital expenditure on hold as the country braces for a difficult winter. Business sentiment and economic expectations are darkening.
Vasyl Khmelnytskyi, founder of an industrial park in the city of Bila Tserkva near Kyiv, said he had scrapped plans to build three new factories.
“The risks are simply too great right now – both for the business and for the people,” he said in a Facebook post.
Ukraine’s agricultural sector – its largest source of export revenues – has been particularly hard hit. Russian attacks on Ukraine’s Black Sea ports led to a 36.6% fall in grain exports year-over-year in September.
About $40 billion in export revenue is at risk this year as a result of the blockade, Economy Minister Oleksandr Kravchenko said.
Even with tens of billions of euros in foreign support, Ukraine’s economy is expected to grow only between 0.5% and 1.5% this year, economists say – down from 1.8% in 2025.
Foreign aid is delayed
During more than four years of intense fighting, Ukraine has been able to maintain macroeconomic and financial stability thanks to fiscal support from its Western partners, receiving nearly $200 billion since Russia’s invasion.
But $29.5 billion in foreign aid is now at risk this year because of delays in passing reforms, Koretskyi said. The government has postponed about $900 million of capital spending until December, in the hope the legislation will be passed.
The aim is to pass all the required legislation in parliament by Oct. 15, Koretskyi said.
“Only then we will get all the money,” Koretskyi said. “This is absolutely vital. It needs to be done as soon as possible.”
Legislators are now discussing the budget for next year. The government has proposed record defense budget spending of $110 billion. This figure does not include direct military aid.
Finance Minister Sergii Marchenko has estimated that the unfunded budget gap for the next year is already more than $32 billion.
Part of the solution, Marchenko said, is to use frozen Russian assets in Europe to fund Ukraine’s budget. EU countries immobilized some 210 billion euros of Russian central bank assets after Moscow invaded Ukraine.
“Ukraine continues to mobilize domestic resources, but the scale of Russia’s war puts clear limits on our capacity,” Marchenko said on the social media platform X.
Oil exports from the Middle East surpassed pre-war volumes for about half of September, shipping data showed Monday, though attacks on tankers and logistical constraints cloud the outlook for sustained higher flows.
Ships transiting the Strait of Hormuz face a “heightened and increasingly unpredictable kinetic threat” given the recent sharp increase in traffic, Marisks, a shipping intelligence service, said Saturday.
The seven-day moving average for crude exports from the region was 18.3 million barrels per day on Sept. 30, provisional Kpler data showed, with cargoes topping pre-war levels on 14 days in September.
That included Gulf oil sent through Hormuz, via the Red Sea, and from terminals and ship-to-ship transfers in the Gulf of Oman.
Shipments had earlier matched or exceeded pre-war levels on a handful of days in June and July, Kpler data showed, after Washington and Tehran reached a memorandum of understanding that has since lapsed.
“Forty percent now bypass Hormuz, and most crude crossing the strait changes tankers offshore,” Kpler said, adding that most of the oil flowed through Saudi and United Arab Emirates (UAE) pipelines.
These figures include flows via the Red Sea, a route increasingly used to bypass the blockade Iran is attempting to impose on Hormuz – where around a fifth of the world’s petroleum supplies crossed before the conflict.
Iran still claims control over the strait, and ships without its authorization risk coming under attack, but more and more are making it out, and alternative routes meant to bypass the waterway are operating at full capacity.
Saudi Arabia drives surge
Crude exports from the region averaged about 18 million bpd in the 12 months before the start of the U.S.-Israeli war with Iran, according to Kpler.
The recent export surge has been driven by Saudi Arabia loading from both the Red Sea and the Gulf, three weeks after a Sept. 10 attack on its East-West pipeline, Kpler said.
It has required more supertankers to shuttle crude through Hormuz, trade sources and analysts have said, adding that ship-to-ship transfers in the Gulf of Oman have reached their limits.
Iraq’s state-owned Oil Tanker Company and some refiners have chartered tankers to load Basrah crude inside the strait after Baghdad secured Iranian permission for Iraqi oil tankers to pass through Hormuz.
Shipping data provider Vortexa also said Gulf flows have recovered. It said that the 14-day moving average for Middle East crude and condensate exports hit 18.6 million bpd, exceeding the 10-year seasonal average and returning to pre-conflict levels.
“Most of this month-over-month increase seen in September comes from Saudi Arabia, which is ramping up exports to regain market share from other Middle Eastern countries,” senior market analyst Xavier Tang said.
“This increase in Middle East supplies will also help alleviate tightness in the oil market, especially for Asian refiners,” he said.
Liquefied natural gas cargoes exiting the Strait of Hormuz also rose in September to their highest since February.
Ship attacks
However, attacks on tankers continued, with at least seven incidents reported in the past week, Marisks said.
The very large crude carrier (VLCC) Kazimah III was reportedly struck on Oct. 1 by an unknown projectile while in the strait, causing a fire onboard, it added. Its owner, Kuwait Oil Tanker Company, did not respond to a request for comment.
Separately, the Liberian-flagged Aframax tanker Lipsi was reportedly struck by an unknown projectile on Oct. 4 while transiting approximately 3.9 nautical miles northeast of Jazirat Um Al Fayarin, Oman, in the Strait of Hormuz, damaging its engine room, Marisks said Monday. Dynacom, its manager, did not immediately respond to a request for comment.
The crew aboard both tankers were reported safe, with no casualties reported, Marisks said.
The United Kingdom Maritime Trade Operations agency has reported at least one attack a day in the Strait of Hormuz or the Gulf of Aden since Oct. 2.
“Current intelligence suggests that the recent pattern of incidents may not necessarily represent deliberate targeting of individually selected merchant vessels,” Marisks said.
“Instead, available information indicates the possibility that Iranian forces are launching missiles into a predetermined engagement area or ‘kill box,’ with weapons potentially acquiring and locking onto available radar signatures within that area.”
Before the Iran war started on Feb. 28, the strait typically handled about 125 large commercial vessels per day, including tankers, gas carriers, bulkers and container vessels, accounting for some 20% of global crude and LNG supply.
Türkiye’s third-biggest state-owned bank has begun an investor roadshow for a secondary share sale, its top executive said Monday, moving forward despite turmoil in the local investment fund market amid strong investor interest.
Halkbank General Manager Süleyman Özdil said he did not expect the crisis to have a negative impact on the offering, adding that the lender had met with nearly 60 investors in Abu Dhabi, Dubai, London and New York and seen strong interest.
“There is no change to the planned share offering. We will launch at the earliest opportunity, subject to market conditions,” Özdil told an interview with Reuters. He did not comment on the possible size of the offering or exact dates.
Halkbank said in August that it had applied to Türkiye’s Capital Markets Board (SPK) for a secondary public offering raising its nominal capital by TL 1.8 billion to TL 9 billion, two months after the dismissal of a U.S. case launched in 2019 alleging it had evaded sanctions on Iran.
Halkbank said after the dismissal that it expected its position in international markets to strengthen and its access to overseas funding to improve.
At current market prices, Halkbank’s planned offering would raise around $1.7 billion, according to Reuters calculations.
No impact expected from fund turmoil
Asked whether investors were concerned about the fund crisis, he said investors believed the market would emerge healthier from the turmoil.
“They think the banking sector is healthy and valuations are cheap. They see the banking sector as the first place to look for investors seeking exposure to Türkiye,” he said.
Türkiye’s main share index entered a bear market and posted its worst monthly performance since 2008 in September after a sell-off that was triggered by the fund turmoil.
Regulators last month ordered the liquidation of 131 investment funds managed by seven asset managers following warnings by some that they could not meet redemption payments.
Authorities have widened their investigation into suspected market manipulation in stocks and fund markets.
Halkbank’s IPO in 2012, raising around $2.5 billion, is still the biggest public offering in Türkiye.
The Türkiye Wealth Fund owns 91.5% of Halkbank, which has paid-in capital of TL 7.18 billion. The remaining 8.5% is publicly traded.
The benefits of artificial intelligence justify accepting some risks, OpenAI Chief Executive Sam Altman said, arguing the technology should remain broadly accessible to the public.
“We believe that the world should accept some bad things happening for the benefits of this technology and people having the agency,” Altman said in an interview with Politico’s technology-focused newsletter Decoded.
Altman said a fundamental difference in worldview remained between OpenAI and rival Anthropic on AI regulation, adding: “I think there’s a lot of daylight.”
“I disagree, but I understand the perspective of people who are like, ‘This technology is going to get so powerful, and it’s so dangerous, that a single lab in San Francisco should have it and make sure nothing bad happens, and kind of figure out how to dole out the benefits,'” Altman said.
He called that “a completely unacceptable trade-off” that runs counter to the “lighter-touch regulatory stance” backed by OpenAI.
“I wouldn’t take a trade of saying, ‘We’ll make sure there’s no major hacks, there’s no misuse of this technology, there’s zero scams, there’s zero all the other bad things that will happen,'” Altman said. “Because I think people will do tremendously – orders of magnitude more – good stuff than bad stuff.”
Altman’s remarks come amid a growing debate within the AI industry over the pace of development and the risks posed by increasingly capable systems.
Anthropic CEO Dario Amodei in September published an essay calling on the industry to slow down to “pace the frontier,” a stance that Altman publicly endorsed. Anthropic researcher Jacob Coxon resigned in September, saying the people building AI believe it “could kill us all by the end of the decade.”
Reuters reported in September that Anthropic warned that, despite AI’s potential benefits, the technology can sometimes act in ways that run counter to its makers’ intentions and penetrate other companies’ systems.
The company said advanced models could exhibit “self-preserving behaviors,” including attempts to “resist shutdown,” “conceal or manipulate information,” or generate outputs that could be interpreted as “coercive, deceptive, or manipulative.”
However, U.S. President Donald Trump has largely dismissed calls for new restrictions, arguing they would make it harder for American companies to compete with Chinese rivals. He has repeatedly said existing law enforcement agencies, including the Justice Department, provide sufficient safeguards and that no new rules are needed.
Türkiye’s annual inflation eased more than expected to 29.73% in September from 31.51% in August, official data showed Monday.
That marked the fourth consecutive month of decline. Inflation was last below 30% in November 2021.
On a monthly basis, the consumer price index (CPI) stood at 1.84%, according to the official data released by the Turkish Statistical Institute (TurkStat).
Food and non-alcoholic beverage prices, one of the largest components of the consumer price index, fell 0.20% from the previous month. Transportation prices increased 2.79%, while housing, water, electricity, gas and other fuel costs rose 2.71%.
Transportation contributed 0.49 percentage points to monthly inflation and housing added 0.33 percentage points. Food prices reduced the monthly reading by 0.05 percentage points.
On an annual basis, food and non-alcoholic beverage prices rose 27.62%, transportation costs increased 35.10% and housing prices climbed 39.99%.
These groups contributed 6.73, 5.96 and 4.84 percentage points, respectively, to annual inflation.
The core C index, which excludes energy, food and non-alcoholic beverages, alcoholic beverages, tobacco and gold, increased 28.70% annually and 2.14% monthly.
The B index, which excludes unprocessed food, energy, alcoholic beverages, tobacco and gold, rose 29% annually and 2.01% month-over-month.
Of the 174 expenditure subclasses tracked by TurkStat, prices increased in 133, declined in 35 and remained unchanged in six.
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