Türkiye's central bank held its benchmark interest rate unchanged at 37% on Wednesday, maintaining its cautious stance for the second straight month amid pricing pressures due to the Middle East conflict.

In March, the Central Bank of the Republic of Türkiye (CBRT) halted an easing cycle, citing market fallout from the Iran war that it said could affect inflation.

On Wednesday, the bank also left its overnight lending and borrowing rates unchanged at 40% and 35.5%, respectively.

Before the regional conflict began shifting expectations, the CBRT had been expected to continue a rate-cutting cycle that began in late 2024.

The Iran war sent energy prices soaring, posing a challenge for import-heavy economies like Türkiye, where inflation still eased to 30.87% last month. On Tuesday, U.S. President Donald Trump extended the war cease-fire indefinitely.

In a statement following Wednesday's Monetary Policy Committee (MPC) meeting, the CBRT said the underlying trend of inflation declined in March, while leading indicators suggest a slight increase in April.

The CBRT said energy prices "remain elevated and exhibit notable volatility" amid geopolitical developments and the resulting uncertainties.

"The effects of these developments and domestic energy prices on the inflation outlook through the cost channel and economic activity are being closely monitored," the statement read.

Indicators point to a slowdown in economic activity, but the bank said "potential second-round effects of recent developments on the inflation outlook will be of importance."

The tight monetary policy stance, it said, will strengthen the disinflation process through demand, exchange rate and expectation channels.

The cease-fire allowed the central bank "to refrain from tightening," William Jackson, economist at Capital Economics, said in a note.

"So long as energy ​prices don't spike again, we ​think the CBRT will ⁠opt to leave interest rates on hold for at least a few more months," Jackson said.

The bank said the policy rate would be determined by taking into account realized and expected inflation and its underlying trend in a way to ensure the tightness required by the projected disinflation path in line with the interim targets.

"Monetary policy decisions are made prudently on a meeting-by-meeting basis with a focus on the inflation outlook," the statement said.

The CBRT in February kept its end-2026 interim inflation target at 16% but lifted its forecast range to 15%-21% from 13%-19% previously.

Earlier on Wednesday, Treasury and Finance Minister Mehmet Şimşek said recent developments will impact Turkish inflation but the downward trend will not change.

Şimşek also said the current account deficit was expected to widen further this year due to the oil price shock, but that this was temporary.

The central bank reiterated the policy stance would be tightened in case of a "significant and persistent deterioration" in the inflation outlook, which can also be driven by the recent developments.

"The Committee reiterated that it remains highly attentive to upside risks on inflation," the bank said.

The CBRT stands ready to support monetary transmission mechanism via additional macroprudential measures in case of unanticipated developments in credit and deposit markets, it added.

"Liquidity conditions will continue to be closely monitored and liquidity management tools will continue to be used effectively."

Analysts at the Dutch financial giant ING said the rate decision implies an intention to move toward normalization as the bank does not see a need to introduce additional tightening ... or to gain additional flexibility by adjusting the upper band of the interest rate corridor.

In the near term, they expect the bank to remain in a wait‑and‑see mode before deciding whether to reduce the effective cost of funding back toward the policy rate.