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Turkey’s central bank is reopening a key liquidity tap for the country’s banking system, resuming one-week repo auctions at its 37% policy rate after suspending them earlier this year when the Iran conflict sent energy prices spiraling.
The move amounts to a controlled easing of financial conditions without actually cutting rates. Banks that have been forced to rely on more expensive overnight lending facilities, where the rate sits at 40%, will now be able to access cheaper weekly funding at 37%.
What the CBRT is actually doing
The one-week repo auction is the CBRT’s primary policy tool for injecting liquidity into the banking system. When the Iran conflict erupted and energy costs surged, the central bank pulled this lever offline, forcing banks into the overnight corridor where borrowing costs range from 35.5% on the low end to 40% on the high end.
The policy rate itself has been parked at 37% since January 2026, when the central bank trimmed it by a single percentage point from 38%. Turkish headline inflation peaked at 32.1% in June 2026 after the Iran war drove energy costs higher across the region. The fact that inflation has started to moderate from that peak is precisely what’s giving the CBRT confidence to reopen the liquidity spigot.
The rate cut roadmap
The repo resumption isn’t the only signal the central bank is sending. Forward guidance suggests further rate cuts of 100 basis points are on the table for both October and December 2026, which would bring the policy rate down to 35% by year-end.
The overnight corridor tells its own story. With borrowing at 35.5% and lending at 40%, the central bank is maintaining a 4.5 percentage point spread that gives it room to maneuver without adjusting the headline rate.
What this means for markets
For Turkish banks, the immediate effect is straightforward: lower average funding costs. When overnight lending at 40% was the only game in town, net interest margins were under pressure. The return of 37% weekly funding provides relief without requiring the central bank to formally ease policy.
Bond markets should respond to the implied rate path. If 35% by December is genuinely on the table, Turkish government debt with maturities beyond that horizon becomes more attractive on a total return basis. A 32.1% peak reading in June still leaves real rates positive at current levels, but that cushion thins quickly if inflation proves stickier than the CBRT expects.
What keeps this from being an unambiguous green light is the pace of the planned cuts. Two 100-basis-point reductions in three months is aggressive for a country with inflation still running above 30%. If oil and gas prices resurge due to a renewed escalation in the Iran conflict, the repo resumption could look premature in hindsight, and the rate cuts might never materialize.
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