Recommendations to the Central Bank of the Republic of Türkiye on an energy supply shock after the 10 September 2026 hold
ABSTRACT
On 10 September 2026 the Monetary Policy Committee (MPC) of the Central Bank of the Republic of Türkiye (CBRT) held the policy rate at 37% and made tightening conditional on a “marked and persistent deterioration” in the inflation outlook. This brief, addressed to the MPC, argues that holding the rate against a supply-driven energy shock is defensible, but that the condition as worded leaves the household channel, where second-round effects form, without an anchor. In real terms the policy rate is about 10.8% against market expectations and about −5.9% against household expectations. The brief recommends holding against the first-round effect, publishing a measurable trigger, stopping the erosion of deposit rates and fixing an external contingency before the late-October FOMC.
1. Why the current stance falls short
The CBRT has not answered the energy price shock of the US–Israel–Iran war, which began on 28 February 2026, with a rate increase. On 23 July the MPC held the policy rate at 37%, the overnight lending rate at 40% and the overnight borrowing rate at 35.5% (Türkiye Cumhuriyet Merkez Bankası [TCMB], 2026). There was no August meeting. On 10 September all three rates were again unchanged; the decision text named energy prices as an upside risk to the inflation outlook and made tightening conditional on a marked and persistent deterioration in that outlook (Capital, 2026; the wording is a summary of the source, not a quotation). The decision matched expectations: 24 of 25 economists surveyed expected a hold, one expected a 100 basis-point cut, and the median year-end policy-rate expectation was 35% (Uzmanpara, 2026b). Markets therefore read September as a postponed easing, not as a tightening signal.
The premise of this brief is that the hold is right in direction and incomplete in design. Kilian (2009) separates oil price movements into crude supply disruptions, global demand shocks and oil-specific precautionary demand; a supply-driven rise lifts prices while compressing output and income. The 2026 shock sits on the supply side, with Hormuz transit restricted since early March and Gulf production infrastructure under attack. Bernanke, Gertler and Watson (1997) argue that much of the output loss after US oil shocks came from systematic monetary tightening rather than from the shock itself; the finding remains contested (Bernanke et al., 2004), but it prices the cost of hiking into a supply shock. Looking through such a shock tolerates the first-round price effect and requires demand management once second-round effects appear, defined here as the initial energy price jump raising later inflation through wages, pricing behaviour and expectations.
The gap in the stance is measurable. Real policy rates below are computed as (1 + policy rate) / (1 + inflation measure) − 1; the calculations are the author’s.
| Inflation measure | Value | Source | Real rate at 37% |
|---|---|---|---|
| Annual CPI, August 2026 | 31.51% | Dünya Gazetesi (2026a) | ≈ 4.2% |
| Market participants, 12-month-ahead, September survey | 23.70% | Uzmanpara (2026a) | ≈ 10.8% |
| Households, MPC summary of 17 September | 45.6% | Dünya Gazetesi (2026b) | ≈ −5.9% |
The roughly 17-point spread decides for whom policy is tight. Financial market participants earn a high real return, and gross reserves rose by $21.6bn to $184.2bn (Dünya Gazetesi, 2026b), consistent with continued demand for lira assets. Households that decide against their own expectation face a negative real rate, and they are where wage demands and retail pricing, the second-round channel, originate. Deposit rates widen the gap: they fell 255 basis points to 44.4% while the policy rate was unchanged (Dünya Gazetesi, 2026b). Against the 45.6% household expectation, a 44.4% deposit rate is about −0.8% in real terms (author’s calculation).
Deterioration has already begun. Market participants’ year-end 2026 expectation rose from 29.43% to 29.61% and the 24-month-ahead expectation from 18.03% to 18.32% (Uzmanpara, 2026a); prices rose in 134 of 174 sub-items in August (Dünya Gazetesi, 2026a). A rising 24-month expectation shows the market starting to price the shock as persistent, the attribute the MPC’s own condition names, yet the condition has no threshold that would turn this into action.
2. Recommendation 1: Keep the policy rate unchanged against the first-round effect
The 17 September summary reports Brent at an August average of $91 and at $103 in early September (series as given in the summary), Q2 2026 GDP growth of 2.3% year on year and falling private consumption (Dünya Gazetesi, 2026b); the July text had already pointed to weakening domestic demand (TCMB, 2026). A headline hike here risks the policy-induced output loss described by Bernanke et al. (1997) without reaching household expectations. Sequencing: hold on 22 October unless the trigger in Recommendation 2 is met. Trade-off: the market’s 35% year-end easing expectation stays priced, which slows the anchoring of lira expectations. Indicator: the breadth of price increases (134 of 174 items in August) narrows in the September and October releases while private consumption does not contract further.
3. Recommendation 2: Replace the qualitative condition with a published trigger
A condition without a measure cannot anchor household expectations, because no household can tell which event would prompt tightening. On 22 October the MPC should state which series, at what size, constitute persistent deterioration. One formulation uses published figures: a September monthly CPI print materially above the 2.12% survey expectation (Uzmanpara, 2026a), confirmed by a further rise in the 24-month expectation above September’s 18.32%, would count as meeting the condition. Sequencing: announce the trigger in October and apply it first to the October survey and the 10 December meeting (Uzmanpara, 2026c). Trade-off: the MPC gives up discretion and may have to tighten into a shock whose source remains external. Indicator: the household expectation, now 45.6%, moves towards the policy rate in successive MPC summaries.
4. Recommendation 3: Stop the erosion of deposit rates before moving the headline rate
The tightness relevant to second-round effects sits in falling household deposit rates. The corridor between the 35.5% borrowing and 40% lending rates (TCMB, 2026) gives the MPC room to raise the effective cost of funding without changing the 37% policy rate. Sequencing: begin after the 5 October CPI release and before any headline decision. Trade-off: steering funding towards the upper band blurs the signal of the headline rate and may be read as a stealth hike. Indicator: the deposit rate stops falling and returns to or above the household expectation, turning the real deposit rate, now about −0.8%, positive.
5. Recommendation 4: Fix an external-channel contingency before the late-October FOMC
The Federal Reserve raised its target range by 25 basis points to 3.75–4.00% on 16 September, citing elevated inflation and linking uncertainty partly to geopolitical developments; the statement did not mention energy or the Middle East separately (Federal Open Market Committee, 2026). The European Central Bank raised its deposit rate by 25 basis points to 2.50% on 10 September, stating that the Middle East conflict continued to create inflationary pressure (European Central Bank, 2026). A second Fed increase on 27–28 October (Federal Reserve, 2026) could push capital out of emerging markets and test an exchange-rate stability built on reserve accumulation. Sequencing: before 27 October, define the reserve drawdown the CBRT will accept before using the rate. Trade-off: drawing on the $184.2bn gross stock buys time but thins the buffer. Indicator: reserves and the exchange rate after the FOMC; a rate response should follow only if both deteriorate together.
6. Implementation risks
A published trigger can be met by noise, which is why Recommendation 2 pairs a monthly surprise with the 24-month series. Corridor tightening can be offset if banks compete less for deposits; the deposit rate, not the corridor setting, measures success. One alternative explanation for the vague condition is that the MPC is deliberately waiting for the 5 October data. That is reasonable while demand is weak and the shock external, but each meeting without a defined trigger leaves the 45.6% household expectation unanchored. The ECB and Fed decisions do not show that the CBRT erred, since 37% already yields a high market-based real rate; they show that both banks resolved the same uncertainty in favour of the expectations channel and the CBRT in favour of waiting.
7. Outlook: Türkiye, Saudi Arabia and the World
For Türkiye, TurkStat publishes September CPI on 5 October 2026 (Uzmanpara, 2026a). A print clearly above 2.12% with a still-rising 24-month expectation meets the MPC’s own condition and makes 22 October the first practical opportunity to tighten (Uzmanpara, 2026c); a print near expectations makes a further hold the likelier path. The 2027 test is whether household expectations fall below the policy rate.
Saudi Arabia sits on the supply side of the CBRT’s energy assumption. The IEA’s September report puts effective OPEC+ spare capacity at 0.22 mb/d (International Energy Agency, 2026), and seven OPEC+ members held October output flat on 6 September, deferring to a 4 October meeting (ANI, 2026). With spare capacity this narrow, a 4 October quota decision is unlikely to raise physical supply soon, so the energy input to the October MPC decision depends more on Saudi export infrastructure than on quota headlines.
At the global level, a second FOMC hike on 27–28 October (Federal Reserve, 2026) would raise the cost of waiting through the exchange-rate channel, the case Recommendation 4 addresses.
8. Conclusion
The holds of 23 July and 10 September answered a supply-driven oil shock while private consumption was falling, and Bernanke et al. (1997) give grounds for avoiding a headline hike under those conditions. The stance is nonetheless split, at about 10.8% in real terms against market expectations and about −5.9% against household expectations, and the undefined condition has delayed a response despite a rising 24-month expectation. The MPC should keep the headline rate, publish a measurable trigger, restore a positive real deposit rate through the corridor and set its external contingency before the FOMC. The 5 October CPI release and the 22 October meeting will show whether conditional guidance becomes policy.
SOURCES
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Furkan Mahmut Tameroglu