Repo Auctions Lose Momentum: TCMB’s Dovish‑Hawkish Tightrope

The repo market’s softening signals a renewed tension between a 37% policy rate and a 40% upper band funding cost.

Weakening Momentum in Repo Auctions

The Central Bank’s pause on weekly repo auctions has sparked expectations that funding costs could shift from 40% back toward 37%, heightening liquidity uncertainty.

Market Expectations and Rate‑Setting Framework

■37% policy rate is projected to stay unchanged by 96% of surveyed participants.

■Only one economist foresees a 300‑basis‑point cut to 34%, marking a potential surprise.

■Borrowing‑lending rates are expected to remain within a 35.5%‑40% band.

Inflation and Energy Shockwaves

■June inflation exceeded 32%, while oil prices climbed above $85 per barrel.

■A surge in milk prices could push July’s monthly inflation above 1.5%.

■Inflation expectations rose from 1.5% in the previous survey to 1.68%.

Fitch’s Assessment and Credit Risks

Fitch Ratings kept Turkey’s credit rating at BB‑, emphasizing targets of 29.5% (2026) and 18% (2028) inflation. Yet, a 300‑basis‑point rise in funding cost and tighter credit limits signal that any policy easing could amplify inflationary and macro‑economic pressures.

Dr. Aslıhan Demir – The tentative return of weekly repo auctions indicates that the Central Bank remains fundamentally hawkish. A persistent 40% upper‑band funding cost may not be enough to offset inflationary pressures from rising oil prices. While a 37% steady policy rate offers a short‑term stability buffer, achieving long‑run inflation goals will likely require a more decisive tightening stance.