TCMB's Repo Policy: Deposit Rates Falling as Credit Markets Watch

Türkiye's Central Bank Governor Fatih Karahan announced during the August 13th inflation report that war-related risks have diminished and domestic demand is cooling, prompting the bank to reconsider 1-week repo auctions. He stated, 'our primary funding tool, the 1-week repo, is on our agenda for the upcoming period' and expects market rates to converge with the policy rate. These remarks triggered a 1-1.5 percentage point drop in deposit rates across the banking sector. For instance, 32-day short-term deposit rates, which were above 41.5%, have now fallen to 40%. International banks are also anticipating TCMB's return to 1-week repo auctions ahead of the September Monetary Policy Meeting (MPM). JPMorgan forecasts the policy rate to reach 35% by year-end, while credit rates remain stable. According to sector sources, TL-denominated commercial credit rates range from 45-46% to 55%.

Will the decline in deposit rates boost consumer lending opportunities? The question remains unanswered as credit markets show no immediate signs of movement. Karahan noted that TCMB's ample liquidity allowed it to meet repo auctions at the upper band, preserving policy flexibility. However, the absence of any ripple effects in credit markets suggests caution among investors.