The Central Bank of the Republic of Türkiye (CBRT) decided to keep its one-week repo rate unchanged at 37.0% and maintained the interest rate corridor at 35.5%-40.0% [1]. According to Commerzbank’s Tatha Ghose, the effective funding rate remains close to 40% due to the continued closure of the weekly repo window, a measure implemented since the Iran shock [1]. Ghose views this high effective rate as supportive for the Turkish Lira [1].
The CBRT did not provide any signals or hints regarding the timing of reopening the repo window, which would effectively lower the funding rate and could potentially weaken the Lira [1]. This lack of forward guidance is seen as marginally positive for the currency [1]. The central bank’s cautious stance is justified by several factors: renewed increases in oil prices, rising inflation expectations, and fragile foreign exchange reserves [1].
June’s consumer price index (CPI) data showed some improvement in raw month-on-month terms, but after seasonal adjustment, inflation still stood at 1.8% m/m [1]. Projections for July suggest inflation may exceed 2% m/m, driven by administered price hikes and the reversal of a fuel tax discount [1]. The CBRT’s statement acknowledged that while the underlying inflation trend softened slightly in June, it is expected to rise again in July [1].
Overall, the CBRT’s decision to maintain tight funding conditions, without signaling a return to lower rates, is interpreted as a marginally positive move for the Lira in the current environment of heightened inflation risks and external vulnerabilities [1].
CONCLUSION
The CBRT’s decision to keep effective funding near 40% and avoid signaling a rate cut is seen as marginally supportive for the Turkish Lira. Persistent inflation pressures and external vulnerabilities justify the central bank’s cautious approach, with no immediate normalization of funding rates expected.