The Central Bank of the Republic of Türkiye has resumed one-week repo operations, effectively moving primary funding costs back to its 37% policy rate from the 40% overnight lending rate. According to ING’s Chris Turner, this shift reverses what amounted to a 300 basis point effective tightening that had been in place through elevated overnight borrowing costs.
The move signals a return to more conventional monetary policy operations after the CBRT’s recent aggressive stance to defend the lira. While headline rates remain unchanged, the practical cost of funding for Turkish banks will now decrease by 300 basis points, potentially easing liquidity conditions in local markets.
This policy normalization could enhance the Turkish lira’s appeal for carry trade strategies, as the 37% policy rate still offers substantial returns in a high-yield environment. Traders should monitor whether this signals growing confidence from the central bank in inflation trends or raises concerns about premature easing.
FXnCO Insight
The effective 300bp rate cut through funding channel normalization makes lira carry trades more attractive, but watch for potential currency weakness if markets interpret this as a hawkish pivot.
Source: FXStreet