Turkey's central bank resumes one-week repo auctions after six-month halt
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Turkey's central bank resumed one-week repo auctions, restoring its main funding channel after a six-month suspension. The move strengthens expectations for one or two policy rate cuts by end-2026. It comes even as the bank signals gradual easing while inflation remains above target.
Key Facts
- The central bank halted one-week repo auctions on March 1 after the US/Israel-Iran war broke out, shifting to overnight funding that effectively raised the weighted average funding cost to 40%.
- The policy rate stands at 37%, but it had become non-functional as the weighted average funding cost rose to 40%.
- President Fatih Karahan and his team brought forward the decision, which had been expected in early autumn after the Medium-Term Program announcement.
- Expectations have strengthened that the policy rate may be cut one or two more times by the end of 2026.
- US Treasury Secretary Scott Bessent announced an expansion of the government bond buyback program aimed at lowering long-term Treasury yields.
Funding Normalization
The central bank's decision this week restored the funding leg of monetary policy to normal. Predictability has increased somewhat compared to six months ago, even though the war environment continues. Policymakers now have more data on how energy markets reacted to the war and how rising energy prices are feeding into inflation under current conditions.
Policy Rate Outlook
The central bank had been signaling for some time that it could return to the 37% policy rate. The author of the source article had expected the decision to come in early autumn after the Medium-Term Program was announced. President Fatih Karahan and his team surprised markets by moving earlier. After this decision, expectations strengthened that the policy rate could be cut one or two more times by the end of 2026. Even though inflation remains above target, the additional contribution of high interest rates to disinflation has become increasingly limited.
US Treasury Market
Recent developments in the US Treasury market have been at the forefront of the global economic agenda. US Treasury Secretary Scott Bessent announced an expansion of the government bond buyback program aimed at lowering long-term Treasury yields.
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Turkey's central bank resumes one-week repo auctions after six-month halt
