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The Central Bank of the Republic of Türkiye (CBRT) announced on Sunday that it will restart one-week repo auctions, a key channel through which the central bank provides banks with short-term funding, to normalize funding conditions for banks.
The bank had halted the auctions on March 1 to tighten monetary conditions as part of broader measures to counter pressure from the Iran war, forcing banks seeking liquidity to rely on costlier overnight funding at 40%.
The move could pave the way for a gradual easing of central bank funding toward the 37% policy rate in the coming weeks.
Since the measures were introduced in early March, the weighted average cost of central bank funding has remained at 40%.
The liquidity deficit reached ₺1 trillion ($20.8 billion) in late March before turning into a ₺1 trillion surplus in the week ending Aug. 21, helped by the bank’s continued foreign exchange purchases, according to central bank data.
The move changes the central bank’s funding operations, but it does not necessarily mean its overall funding cost will fall immediately to the 37% policy rate, Tufan Comert, BBVA’s head of Türkiye and MENA Credit Research, said.
"Starting tomorrow, the funding cost will change with the central bank’s operational decision," Comert wrote on X. "However, the critical issue we do not yet know is how the funding composition will change."
The decision also raises a debate over whether it amounts to an implicit rate cut. Comert rejects that description, arguing that the central bank has not yet shown how much the new funding arrangement will lower its overall funding cost.
Turkish policymakers had kept the one-week repo rate unchanged at 37% at its March 12 meeting, while holding the overnight lending rate at 40%.
The bank left rates unchanged again at its April 22, June 11 and July 23 meetings, keeping the policy rate at 37% and the overnight lending rate at 40%. By July, it pointed to weaker domestic demand and a temporary rise in underlying inflation driven by higher energy prices and geopolitical uncertainty.
Inflation remained well above the CBRT’s earlier projections. Annual consumer inflation rose from 30.9% in March to 32.4% in April and 32.6% in May before easing to 32.1% in June and 31.8% in July.
The CBRT’s inflation outlook also shifted sharply. In its February Inflation Report, it projected 2026 year-end inflation at 15%-21%, with an interim target of 16%.
In May, the bank scrapped that forecast range amid heightened geopolitical volatility and raised its 2026 interim target to 24%, from 16%. It also raised its 2027 and 2028 interim targets to 15% and 9%, respectively.
In its latest Inflation Report on Aug. 13, the CBRT raised its 2026 year-end inflation forecast by 2 percentage points to 28%, while keeping its projections at 15% for 2027 and 9% for 2028.
Governor Fatih Karahan attributed the revision to higher diesel, natural gas and non-energy commodity prices, along with increased food and administered-price assumptions.
The CBRT’s next MPC meeting is scheduled for Sept. 10.
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