Economy
Turkish central bank keeps rates steady, to adjust policy prudently
The Turkish central bank said on Thursday it would adjust its policy rate prudently on a meeting-by-meeting basis with a focus on the inflation outlook as it held the rate at 46%, in line with expectations.
The Central Bank of the Republic of Türkiye (CBRT) also said it decided to maintain its overnight lending rate and the overnight borrowing rate at 49% and 44.5%, respectively.
“The underlying trend of inflation declined in May. Leading indicators suggest that this decline continues in June. Data for the second quarter points to a slowdown in domestic demand,” the bank said after its policy-setting committee meeting.
It also said that the potential effects of the geopolitical developments and the rising protectionism in global trade on the disinflation process “are closely monitored.”
However, it cautioned that inflation expectations and pricing behavior “continue to pose risks to the disinflation process.”
Annual inflation in Türkiye edged down to 35.4% in May, touching the lowest level seen since late 2021 and less than half of the rate seen in mid-2024, according to the official data.
The Turkish lira was widely unchanged, gaining around 0.17% following the committee meeting and trading at 39.55 per U.S. dollar at 2:35 p.m. local time.
The CBRT hiked rates by 350 basis points in its previous meeting in April, in response to market developments and growing protectionism measures spurred by U.S. President Donald Trump’s sweeping tariffs.
The bank at the time revered its short-lived easing cycle that followed a long-tightening drive that had commenced in 2023 amid a shift to more conventional monetary policy.
From May 2023 until March last year, the bank raised the rate from 8.5% to 50% and then kept it constant until its meeting last December, when it lowered the rate 250 basis points to 47.5%.
The bank then cut the benchmark rate at the next three meetings from 47.5% to 42.5%. In the April meeting, in a surprise move, the bank raised the rate by 350 basis points to 46%.
On Thursday, the bank said that the policy rate will be determined “in a way to ensure the tightness required by the projected disinflation path, taking into account realized and expected inflation, and the underlying trend.”
It provided less clarity on the path of potential easing in the months ahead as it pledged to focus on the inflation outlook. However, the bank dropped the vow for policy “to be tightened” in case of deterioration in inflation.
“The committee will adjust the policy rate prudently on a meeting-by-meeting basis with a focus on the inflation outlook. All monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen,” the CBRT said.
Markets are forecasting inflation cooling to 29.86% by the end of 2025, according to the bank’s recently published Survey of Market Participants for June.
“In case of unanticipated developments in credit and deposit markets, the monetary transmission mechanism will be supported via additional macroprudential measures. Liquidity conditions will continue to be closely monitored and liquidity management tools will continue to be used effectively,” it also noted.
Nine European Union member states have urged the European Commission to propose measures to end EU trade with Israeli settlements in the occupied Palestinian territories, a report said Thursday.
The call was made by Belgium, Finland, Ireland, Luxembourg, Poland, Portugal, Slovenia, Spain and Sweden, according to a letter signed by the countries’ foreign ministers and addressed to EU foreign policy chief Kaja Kallas, Reuters said.
The EU is Israel’s biggest trading partner, accounting for about a third of its total goods trade. Two-way goods trade between the bloc and Israel stood at 42.6 billion euros ($48.91 billion) last year, though it was unclear how much of that trade involved settlements.
The ministers pointed to a July 2024 advisory opinion from the International Court of Justice (ICJ), which said Israel’s occupation of Palestinian territories and settlements there is illegal. It said states should take steps to prevent trade or investment relations that help maintain the situation.
“We have not seen a proposal to initiate discussions on how to effectively discontinue trade of goods and services with the illegal settlements,” the ministers wrote.
“We need the European Commission to develop proposals for concrete measures to ensure compliance by the Union with the obligations identified by the Court,” they added.
Belgian Foreign Minister Maxime Prevot said Europe must ensure trade policy is in line with international law. “Trade cannot be disconnected from our legal and moral responsibilities,” the minister said in a statement to Reuters.
“This is about ensuring that EU policies do not contribute, directly or indirectly, to the perpetuation of an illegal situation,” he said.
The ministers’ letter comes ahead of a meeting in Brussels on June 23, where EU foreign ministers are set to discuss the bloc’s relationship with Israel.
Ministers are expected to receive an assessment on whether Israel is complying with a human rights clause in a pact governing its political and economic ties with Europe, after the bloc decided to review Israel’s adherence to the agreement due to the situation in Gaza.
Israel’s genocidal war has devastated the Palestinian enclave, displacing nearly all its residents and killing more than 55,000 people, mostly women and children, according to local health authorities.
Hitachi Energy will invest $70 million in Türkiye to expand its transformers manufacturing capacity, the Swiss-based supplier of power technology and electrification announced on Thursday.
The investment will be directed toward its plant in Dilovası district of northwestern Kocaeli province, where production capacity is expected to increase by 70%, the company said in a statement.
The expansion is also projected to boost the company’s workforce in Türkiye by 30%, the statement said. The company currently employs more than 1,100 people in Türkiye, according to its website.
Hitachi Energy said demand for electricity in Türkiye, as well as throughout both Europe and Asia, is growing “exponentially” and suggested that the industry and energy infrastructure “simply can’t keep up.”
“Recent geopolitical volatility has exacerbated supply chain disruption and poses additional concerns from an energy security, accessibility, and volatility standpoint,” it noted.
The power transformers facility, one of Hitachi Energy’s major production hubs, will undergo a significant upgrade with the construction of an additional 45,000 square meters of operational space.
The project is scheduled for completion by 2026, the company said.
“The move to the Organized Industrial Zone in Dilovası offers significant advantages, including ease of transportation of transformers due to its proximity to the commercial port,” said Yasemin Hoşder Öztekin, country managing director at Hitachi Energy.
“This investment underscores our commitment to supporting the energy transition and meeting the decarbonization needs of our customers.”
As part of the investment, employees from the Kartal factory in Istanbul will transition to Dilovası, the company said. Hitachi Energy currently has four factories in Türkiye.
Chinese e-commerce giant Temu has officially entered the Turkish market, launching local operations with an ambitious promise of one-day delivery through a new logistics hub in Istanbul, according to reports on Thursday.
Temu, a subsidiary of PDD Holdings, has rapidly expanded globally in recent years by shipping low-cost products directly to consumers and taking advantage of customs exemptions for low-value goods.
According to Turkish tech news outlet DonanımHaber, the company opened an operations office in Istanbul on Thursday and plans to establish a warehouse to facilitate direct domestic deliveries.
Temu did not immediately respond to Daily Sabah’s inquiry regarding the reported developments.
The company has already relocated its billing and payment systems from Dublin, Ireland, to Türkiye, private broadcaster CNBC-e reported.
Last month, Temu representatives informed Turkish Trade Ministry officials that the company was taking steps to establish a representative office in Türkiye, according to Anadolu Agency (AA).
The update followed a meeting between the ministry and company officials to address Temu’s legal obligations and responsibilities related to e-commerce product safety.
Officials reportedly told the company that, under new regulations, selling products without information about a locally established economic operator would not be permitted.
Since last year, Türkiye has sought to rein in soaring imports amid surging demand for low-cost goods from platforms like Temu.
The government is now considering lowering the current 30-euro (about $34.50) customs-free threshold for international purchases to 22 euros, according to Mustafa Gültepe, chair of the Türkiye Exporters Assembly (TIM).
The threshold was previously reduced from 150 euros in August last year. At the same time, import duties on packages from Europe were increased to 30% from 18%, while taxes on goods from outside the European Union were doubled to 60%.
Current rules allow a maximum of five items per shipment, with no more than two of the same product, and limit each person to five purchases per month.
According to data from the Interbank Card Center (BKM), spending on international shopping using Türkiye-issued cards rose by 40% last year, reaching TL 218 billion (over $5.5 billion).
The Bank of England (BoE) kept its main interest rate unchanged at 4.25% on Thursday, as fears grow that the conflict between Israel and Iran will escalate and inflation remains above its long-term target.
The decision on Thursday by the bank’s nine-member Monetary Policy Committee (MPC) was widely anticipated.
With U.K. inflation at 3.4% above the bank’s target rate of 2%, policymakers were mindful of how the conflict in the Middle East would impact oil prices, which have risen sharply in recent days to over $75 a barrel.
Noting the elevated global uncertainty and persistent inflation, the Monetary Policy Committee (MPC) voted 6-3 to keep rates on hold. Deputy Governor Dave Ramsden joined Swati Dhingra and Alan Taylor to vote for a quarter-point reduction.
A Reuters poll of economists had forecast a 7-2 vote to keep rates on hold after the central bank cut borrowing costs last month for the fourth time since August 2024.
“Interest rates remain on a gradual downward path,” BoE Governor Andrew Bailey said, although policymakers added that interest rates were not on a preset path.
“The world is highly unpredictable. In the U.K., we see signs of softening in the labor market. We will be looking carefully at the extent to which those signs feed through to consumer price inflation,” he added.
The central bank said rising tensions in the Middle East, as it held its meeting over the past week, had not been key to June’s decision to hold rates but would be closely monitored going forward.
“Global uncertainty remains elevated. Energy prices have risen due to the escalation of the conflict in the Middle East. The Committee will remain sensitive to heightened unpredictability in the economic and geopolitical environment and will continue to update its assessment of economic risks,” the bank said in its MPC summary.
Nearly all 60 economists polled by Reuters before the BoE’s June meeting had predicted it would keep Bank Rate on hold at 4.25%, with the next cut likely in August, and a further reduction in the final three months of this year.
Before Thursday’s rate decision, investors were pricing around two more quarter-point rate cuts by the BoE to 3.75% by December 2025.
The central bank kept its guidance, saying it would take a “gradual and careful” approach to further rate cuts.
The BoE left its forecast for inflation broadly unchanged for the second half of this year, seeing a peak rate of 3.7% in September and an average of just under 3.5% for the rest of the year.
The economy is expected to grow around 0.25% in the second quarter of this year, slightly stronger than in its May forecast, though it said the underlying pace was weak.
Since the middle of last year, the BoE has cut interest rates by one percentage point, the same as the U.S. Federal Reserve (Fed) which on Wednesday held interest rates at the 4.25%-4.50% range – but only half as much as the European Central Bank (ECB), which has had less persistent inflation.
Markets see just under half a percentage point more easing by the Fed this year and a further quarter-point cut by the ECB.
The Fed on Wednesday cut its economic growth forecasts for 2025, raised its inflation projection and said the uncertainty hanging over the economy had diminished but remained elevated.
The economic instability in the Middle East is worsening with the escalation of the conflict between Israel and Iran, which began last week, raising concerns that a prolonged crisis will affect the global economy.
Heightened tensions in the region have triggered fluctuations in energy markets and disrupted supply chains.
Experts say that uncertainty in the energy sector is driving up global oil and natural gas prices, while disruptions to the region’s logistics infrastructure amid the conflict are affecting imports and exports, particularly food and industrial goods.
Economies dependent on these supply chains and countries with trade relations with the two countries are primarily affected.
Rising geopolitical risks in the Middle East are shaking investor confidence, which is evident from the sharp declines in stocks across many countries, especially in the Gulf states. Credit ratings in these countries may also face pressure due to the rising risk premium.
Crisis can push up inflation
Ali Arı, an economics professor at Istanbul-based Marmara University, told Anadolu Agency (AA) that the potential closure of the Strait of Hormuz is one of the epicenters of the ongoing crisis, as the waterway accounts for one-third of global oil and one-fifth of liquefied natural gas (LNG) trade.
“Even the slightest disruption in the Strait of Hormuz will be enough to cause panic across the markets-even the potential of its closure caused oil prices to jump from $65 to $78 (per barrel),” he said, noting that alternative routes are insufficient, pointing to the waterway’s significance, as 20 million barrels of oil and 90 billion cubic meters of LNG pass through the narrow route every day.
Arı said the deepening crisis can push up global inflation, while fueling global uncertainties can lead to downward revisions in growth rates in the global economy.
He mentioned that the risk perception alone can add enough strain to the markets to keep prices high if the escalation of the conflict does not disrupt oil and gas supplies.
“Producers may benefit from higher prices in the short term, but the declining demand and accelerated efforts to seek alternative energy sources can prevail in the long term,” he said.
“Consumer countries are seeing inflationary pressures rise on energy costs, which may force central banks to reconsider their monetary policy,” he added, noting that the Iran-Israel conflict’s impact goes beyond a regional issue.
Arı highlighted that the escalation of political tensions in the Middle East affected the risk appetite, giving rise to uncertainties and prompting investors to move away from the region and opt for safe-haven assets.
“U.S. and European stock markets saw major sell-off waves when the tensions intensified, as the S&P 500 and the Nasdaq fell around 0.8%-0.9% with concerns that the Trump administration may take harsher steps against Iran, while safe-haven assets like gold rose,” he said.
Arı also noted that the economic impact on the region is varied, with Gulf countries enjoying some short-term financial opportunity due to higher oil prices caused by geopolitical risks, while the unexpected capital flow may aid in the closure of budget deficits and the strengthening of wealth funds.
“But there’s another aspect to this: If this uncertainty persists, or in other words, if the conflict isn’t brought under control in the short term, foreign investments into the Gulf could be disrupted-global funds are already cautious and the continuation of the conflict can prompt them to postpone their projects or shift their attention elsewhere,” he said.
“In the event of an even broader conflict, capital outflows may accelerate, sharp declines across the stock markets can be expected and we may even see liquidity stresses in the banking system,” he added.
“Rising tensions can also push for more defense spending, adding extra burdens on countries.”
Syria has completed its first international bank transaction through the SWIFT system since the onset of its 14-year civil war, its central bank governor said Thursday, marking a significant step in the country’s efforts to reintegrate into the global financial system.
Governor Abdelkader Husriyeh said a direct commercial transaction had been carried out from a Syrian to an Italian bank on Sunday, and that transactions with U.S. banks could begin within weeks.
“The door is now open to more such transactions,” he told Reuters in Damascus.
Syrian banks were largely cut off from the world during the civil war after a crackdown by Bashar Assad on anti-government protests in 2011 led Western states to impose sanctions, including on Syria’s central bank.
Assad was ousted in a lightning offensive by opposition forces last year and Syria has since taken steps to re-establish international ties, culminating in a May meeting between interim President Ahmed al-Sharaa and U.S. President Donald Trump in Riyadh.
The U.S. then significantly eased its sanctions and some in Congress are pushing for them to be totally repealed. Europe has announced the end of its economic sanctions regime.
Syria needs to make transfers with Western financial institutions in order to bring in huge sums for reconstruction and to kickstart a war-ravaged economy that has left nine out of 10 people poor, according to the United Nations.
Husriyeh chaired a high-level virtual meeting on Wednesday, bringing together Syrian banks, several U.S. banks and U.S. officials, including Washington’s Syria envoy Thomas Barrack.
The aim of the meeting was to accelerate the reconnection of Syria’s banking system to the global financial system and Husriyeh extended a formal invitation to U.S. banks to re-establish correspondent banking ties.
“We have two clear targets: have U.S. banks set up representative offices in Syria and have transactions resume between Syrian and American banks. I think the latter can happen in a matter of weeks,” Husriyeh told Reuters.
Among the banks invited to Wednesday’s conference were JPMorgan, Morgan Stanley and Citibank, though it was not immediately clear who attended.
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