BofA: Turkey’s Repo Resumption Signals Liquidity Normalisation, TLREF Falls from 40% to 37%

BofA described the Turkish Central Bank’s (TCMB) return to weekly repo auctions as a "full normalisation step in the liquidity framework" in response to macro‑financial risks post‑Iran war.

Repo Resumption Signals Liquidity Reboot

■The move has pushed TLREF from 40% levels down to 37%.

■Average funding costs mirrored this decline.

■Timing aligns with signals from Fatih Karahan in the 13 August Inflation Report meeting.

Market Dynamics Driving the Shift

■Strong recovery in gross and net reserves

■Increase in carry‑trade inflows

■Noticeable slowdown in domestic demand accelerating normalisation

Effective Rates Drop, Policy Rate Outlook

■A 300 basis‑point drop in effective rates, yet the room for direct rate cuts remains tight.

■Inflation expectations stay high and geopolitical uncertainties persist.

■The September Monetary Policy Committee (MPC) meeting is expected to keep the policy rate unchanged.

■An 100 basis‑point cut in October is projected to bring the policy rate down to 36%.

Inflation and Long‑Term Projections

■Year‑end inflation forecast of 29.5%.

■2027 policy‑rate expectation of 32%.

■2027 inflation forecast of 26%.

BofA’s analysis highlights Turkey’s efforts to restore macro‑economic balance; yet high inflation pressures and geopolitical risks suggest that significant rate cuts are unlikely in the near term. Market participants, especially in currency and bond markets, will keep a close eye on these developments, as repo normalisation improves liquidity but may have limited impact on inflation control.