TCMB Keeps Policy Rate at 37%: Energy Price Surge and Repo Auctions Signal Gradual Normalisation

The Central Bank of the Republic of Turkey has maintained its policy rate at 37%, keeping overnight lending at 40% and borrowing at 35.5%, while noting a modest decline in the core inflation trend but a temporary rise expected in July.

High Rates, Low Flexibility

■Policy rate locked at 37%; 450 basis points gap preserved.

■Overnight repo auctions paused; funding to be sourced via the overnight lending channel.

■Short‑term inflation outlook more cautious; energy prices trending upward.

Energy Prices: A Hot Signal

■Geopolitical developments have pushed energy costs higher.

■Energy price rises highlighted for their impact on inflation.

■July’s “temporary uptick” signals a shift from a dovish stance.

Two‑Step Repo Strategy

■One‑week repo auctions will not resume.

■August will see repo auctions re‑introduced to gradually reduce funding costs.

■End‑quarter could see modest rate cuts bringing the policy rate to 34%.

Global Uncertainty and Currency Demand

■Currency demand and global market uncertainty influence short‑term rate decisions.

■A global improvement could end the initial tightening phase.

■Macro‑prudential framework and liquidity messages remain unchanged, with a cautious stance.

Outlook: Gradual Normalisation

■The CB will continue a gradual normalisation for the rest of the year.

■Improvement in inflation data may trigger the resumption of repo auctions.

■Result: By the last quarter of 2024, the policy rate could drop to 34%.

Markets view the CB’s careful approach as a balancing act to keep inflation under control while strategically restarting short‑term repo auctions, a key lever to ease tightening in SME lending and commercial credit growth.