Türkiye's central bank is restarting one-week repo auctions suspended at the beginning of March, restoring its main bank-liquidity channel at the official 37% policy rate. This is not a new policy-rate cut: the headline rate has been unchanged since January. The move nevertheless removes part of the additional tightening that had kept money-market rates close to the 40% upper end of the interest-rate corridor. How far effective funding costs decline will depend on auction volumes and liquidity conditions in the banking system.
Türkiye restarts one-week repo auctions
The Central Bank of the Republic of Türkiye announced on August 23 that it would resume one-week repo auctions suspended on March 1, 2026. The brief statement announced no other monetary-policy changes.
A repo is a transaction through which a central bank supplies short-term liquidity to commercial banks against securities. In Türkiye, the rate on one-week repo auctions is also the official policy rate, currently 37%.
The August 23 decision therefore is not a formal interest-rate cut. It changes the mechanism through which the central bank supplies and manages short-term lira liquidity.
That distinction is central to the original Bloomberg report: restoring the weekly facility should steer funding conditions back toward the official 37% rate after months in which short-term money-market rates were maintained near 40%.
Türkiye’s policy rate remains at 37%
The central bank last changed the headline rate on January 22, lowering it by one percentage point from 38% to 37%. At the same meeting, the overnight lending rate was reduced from 41% to 40% and the overnight borrowing rate from 36.5% to 35.5%.
The Monetary Policy Committee subsequently kept those levels unchanged. On July 23, it again maintained the policy rate at 37%, the overnight lending rate at 40% and the borrowing rate at 35.5%. Policymakers cited a slight easing in underlying inflation in June, a temporary increase expected in July, weaker domestic demand and renewed risks from energy prices.
The next scheduled rate decision is due on September 10.
The official interest-rate corridor is therefore unchanged. What is changing is where within that framework the effective cost of short-term liquidity is likely to settle.
Why effective funding moved toward 40%
The CBRT suspended its weekly auctions on March 1 following increased financial-market volatility. In a subsequent monetary-policy assessment, it linked that period to rising geopolitical uncertainty and sharp increases and volatility in crude oil, natural gas and other commodity prices.
With the weekly facility closed, liquidity tools were used in a way that raised the average funding cost to around 40%, equal to the overnight lending rate. The central bank also introduced Turkish-lira-settled foreign-exchange forward selling transactions to limit exchange-rate volatility and stabilize foreign-exchange liquidity. The mechanism is described in the CBRT's March policy summary.
In economic terms, the liquidity framework produced additional tightening equivalent to roughly three percentage points relative to the headline policy rate without formally raising that rate from 37% to 40%.
The reversal should not, however, be described as an automatic three-percentage-point cut in effective rates. The central bank is reopening the weekly facility; the resulting average cost of funding will depend on auction amounts, banks' liquidity needs and other sterilization or liquidity operations.
Money-market rates had been kept near 40%
Governor Fatih Karahan confirmed on August 13 that one-week repo auctions had not been conducted and that liquidity needs were being met through overnight funding at the upper band when necessary. Effective liquidity management had kept money-market rates close to 40%.
Karahan also reported a sharp improvement in reserves. Gross international reserves increased from $155 billion on March 27 to $185 billion on August 12. Net reserves excluding swaps rose by $35 billion over the same period to $56 billion.
Credit growth slowed at the same time. Total loan growth declined from 34.6% at the end of February to around 25%. Growth in lira commercial and consumer lending fell to roughly 35%, while foreign-currency credit growth dropped below 10%. The share of lira deposits rose to 62%. The figures were presented in Karahan's August inflation briefing.
The central bank has also noted that deposit rates and commercial-loan rates tend to move with its weighted average funding cost. Consumer-loan pricing depends additionally on macroprudential rules and credit risks.
Restoring weekly repo funding can therefore feed through into bank pricing, but it does not mean that every loan rate will immediately decline by three percentage points.
Inflation eases to 31.75%
The liquidity normalization comes as annual inflation continues to decline, albeit slowly.
Consumer prices increased 1.78% in July from the previous month and 31.75% from a year earlier. Annual inflation stood at 32.11% in June, when monthly inflation was 0.99%.
Price growth remains high across major household spending categories. Food and non-alcoholic beverages rose 37.53% year on year, housing, water, electricity, gas and other fuels increased 40.32%, and transport rose 30.83%.
The C core index, which excludes energy, food and non-alcoholic beverages, alcohol, tobacco and gold, increased 29.91% annually, according to TurkStat's July CPI release.
Annual inflation is therefore easing, but monthly price growth accelerated again in July. That limits the case for interpreting cheaper liquidity as the start of an aggressive cycle of formal rate cuts.
The CBRT raises its inflation forecast to 28%
The central bank itself became more cautious about the near-term inflation outlook in August, raising its end-2026 forecast by two percentage points to 28%.
It expects inflation to decline to 15% at the end of 2027 and 9% at the end of 2028 before stabilizing around the medium-term target of 5%.
Higher assumptions for diesel, natural gas and non-energy commodity prices contributed to the revision, alongside food inflation and administered prices.
The gap between current inflation of 31.75% and the 5% medium-term target remains substantial. That is why policymakers continue to describe monetary conditions as tight even as they normalize the way liquidity is supplied.
Markets had expected a 37% September rate before the decision
The central bank's August Survey of Market Participants provides an indication of expectations before the latest liquidity move. Respondents put end-2026 inflation at 29.43%, 12-month inflation at 23.69% and 24-month inflation at 18.03%.
The average forecast for the next policy meeting was exactly 37%. Respondents expected about 36.13% at the following meeting and 35.25% at the third, with the year-end policy-rate expectation also at 35.25%.
The average dollar-lira forecast stood at 51.6567 for the end of 2026 and 57.4278 at a 12-month horizon. The expected 2026 GDP growth rate was 3.1%.
An important timing qualification applies: the August market-participant survey was conducted on August 10–12, before the August 13 Inflation Report and before the August 23 repo-auction announcement. It therefore does not incorporate the market's response to the latest liquidity decision.
Stronger reserves give policymakers more room
The return of weekly repo funding comes with the central bank's reserve position much stronger than in the spring. That reduces one constraint on policy normalization: the need to maintain the attractiveness of lira assets while guarding against a sudden increase in foreign-currency demand.
Weaker domestic demand provides another buffer. The CBRT says demand conditions in the second quarter remained at disinflationary levels. Slower credit growth and card spending reduce the risk that cheaper short-term liquidity immediately translates into another consumption surge.
The balance remains fragile, however. Türkiye imports a large part of its energy needs, making global oil and gas prices important for the trade balance, the lira, production costs and consumer inflation.
Analysts had anticipated a funding normalization
Before the August 23 decision, economists had already identified reopening the weekly facility as a likely first stage of monetary normalization.
ING argued in early August that lower geopolitical risks and recovering reserves could give the central bank room to bring effective funding costs back toward the policy rate in August or September. It estimated foreign-exchange purchases, adjusted for gold-price effects, at about $14.8 billion in June and another $9 billion in July. Its baseline scenario envisaged the policy rate moving toward 35% in the fourth quarter if inflation and financial conditions continued to improve.
The latest move delivers the liquidity-management part of that scenario, but it does not guarantee any particular path for the official policy rate.
The CBRT can also reverse the normalization relatively quickly if inflation, the lira or energy prices deteriorate again. The resumption of repo auctions should therefore be separated from a full rate-cutting cycle.
As experts at International Investment report, the CBRT decision genuinely removes part of the additional tightening in place since March, but describing it as a three-percentage-point policy-rate cut would be inaccurate. The official rate remains 37%; reopening weekly repo auctions creates conditions for effective short-term rates to converge toward it. Stronger reserves and slower credit growth give policymakers more room to normalize liquidity, but inflation near 32%, faster monthly price growth and Türkiye's exposure to imported energy leave the central bank vulnerable to another shock. The critical test will be the response of the lira, deposit pricing and inflation expectations once cheaper liquidity begins flowing through the banking system.
FAQ: Türkiye's policy rate and repo funding
Did the CBRT cut its policy rate on August 23, 2026?
No. The official policy rate remains 37%. The central bank restarted one-week repo auctions that had been suspended on March 1.
Why is the move considered monetary easing?
Since March, short-term money-market rates had been kept close to the 40% upper end of the corridor. Weekly funding at 37% allows part of that additional tightening to be unwound.
Will effective funding immediately fall from 40% to 37%?
Not necessarily. The result will depend on the size of repo auctions, banking-system liquidity and the central bank's other liquidity-management operations.
What is Türkiye's current policy rate?
The one-week repo policy rate is 37% and has been at that level since January 2026.
What is Türkiye's current inflation rate?
Consumer inflation was 31.75% year on year and 1.78% month on month in July.
What is the CBRT's end-2026 inflation forecast?
The central bank projects 28% inflation at the end of 2026, followed by 15% at the end of 2027 and 9% at the end of 2028.
When is the next CBRT policy meeting?
The next policy-rate decision is scheduled for September 10, 2026.
Does the market expect a September rate cut?
A survey conducted on August 10–12 showed an average expectation of 37% for the next meeting. It predates the August 23 repo decision and therefore does not show the market's reaction to the latest move.
Could the decision lower loan and deposit rates?
Potentially. A lower average funding cost can gradually feed into bank pricing, although macroprudential rules, credit risk and competition for deposits will determine the magnitude and timing.