Turkey's central bank to resume 37% repo auctions after Iran war shock eases
Turkey's central bank is preparing to resume weekly repo auctions at the policy rate of 37% to bring funding conditions in the financial system back to normal, after assessing that the most severe economic impact from the war in Iran may have passed. Previously, the central bank suspended funding at the 37% policy rate from early March and switched to a higher overnight lending rate of 40%, effectively a stealth rate hike, to cope with uncertainty after the war erupted in Iran. However, in a statement released on Sunday evening, the central bank did not say when it would resume weekly repo auctions. Fatih Karahan, the central bank governor, said during the presentation of the quarterly inflation report earlier this month that resuming weekly repo auctions was on the central bank's agenda, with the goal of normalizing liquidity conditions rather than signaling monetary easing. Karahan also said at the time that he believed the worst impact of the war had passed. Tugberk Citilci, research director at Fiba Yatirim in Istanbul, said the decision appears to reflect that the central bank has ruled out the possibility of Brent crude oil prices climbing back above $100 per barrel. However, the timing of the central bank's move surprised the market. Turkey is highly dependent on oil and natural gas imports, making its economy highly vulnerable to the surge in global energy prices caused by the war. Volatile energy and food prices have added to domestic inflationary pressures. As a result, the central bank raised its year-end inflation forecast in August to 28% from 26%, bringing it closer to market expectations, while Turkey's annual inflation rate stood at 31.8% in July. The return to weekly repo auctions at the 37% policy rate is therefore seen as an important step in bringing the central bank's funding mechanism back to normal after it had to use a higher overnight rate to cope with war-driven volatility. However, the central bank stressed that the move should not be interpreted as the start of monetary easing amid still-high inflation.
Turkey's central bank raises year-end inflation forecast to 28%
Turkey's central bank has raised its forecast for inflation at the end of 2026 to 28%, up from a previous estimate of 26%, amid geopolitical uncertainty from the Iran war and volatility in energy and food prices. Central bank governor Fatih Karahan announced the new projection during a briefing in Istanbul on Thursday, August 13. A central bank survey last month found that markets expected year-end inflation of around 29%, while the central bank kept its inflation target unchanged at 24%. Although inflation slowed for a second consecutive month to 31.8% in July, the central bank continued to signal a tight monetary policy stance. Since the war erupted in late February, the central bank has used the 40% overnight lending rate as its main channel for providing liquidity to the financial system, instead of the 37% benchmark policy rate.
Commerzbank warns Turkish bank stress heightens lira vulnerability
Commerzbank warns that stress in Turkey's banking sector is increasing the vulnerability of the Turkish lira. Tatha Ghose at Commerzbank flags Fitch’s latest review of Turkish banks as another negative signal for the currency. Profitability has weakened after regulatory changes on FX risk-weighted assets, with capital ratios lower and margins squeezed by prior rate cuts and high costs.
Commerzbank sees dovish corridor risks for Turkish lira
Commerzbank expects the Central Bank of the Republic of Türkiye to leave the 37% repo rate unchanged. Tatha Ghose at Commerzbank said the central bank is operationally signaling readiness to normalise the corridor and re-enable weekly repo once war risks ease.
Turkish Lira under pressure from structural external gaps, Commerzbank says
Commerzbank’s Tatha Ghose highlighted that Turkey’s current-account deficit widened in May and remains structurally driven by savings-investment imbalances. Portfolio inflows are muted, with May showing renewed outflows and signs of capital flight.