Turkiye TCMB Restarts Repo Auctions and Surprises Our Expectation by

Economics Research 24 August 2026 | 12:33PM BST

Turkiye: TCMB Restarts Repo Auctions and Surprises Our Expectation by Cutting the Depo Auction Rate toward the Repo Rate

Bottom line: The TCMB announced late on Sunday that it would resume repo Clemens Grafe | funding at 37.00%, which it had suspended on 1 March following the start of the war Goldman Sachs International in Iran, shifting bank funding to the ON window at 40.00% and absorbing liquidity Basak Edizgil through deposit auctions at 40.00%. This morning, the Bank lowered the deposit | auction cut-off interest rate toward the repo rate as well. Since the system is Goldman Sachs International

currently liquidity rich, it is the cut to the deposit auction rates that essentially now anchors market rates at 37.00%. The TCMB thus effectively cut rates by 300bps to 37.00% today, fully normalising policy.

Given the Bank had announced on 13 August that it was likely to reopen the repo, the resumption of repo auctions was not a surprise (though the exact timing was unknown). What came as a surprise to us is the reduction in the cut-off rate of the deposit auctions from 40.00% towards 37.00%. We had thought the Bank would prefer a more gradual pace towards normalisation, by setting tight quantity limits on repo auctions, while gradually lowering the cut-off rate of the deposit auctions. Instead, the Bank opted to effectively cut by 300bps to 37.00% in one step.

Governor Karahan had suggested at the third Inflation Report of the year that a return to repo funding would represent policy normalisation, reflecting what the TCMB sees as a meaningful easing of upside risks to the medium-term inflation outlook. Although we think that the inflationary risks from higher energy prices are still significant, the absence of material dollarisation pressure, continued inflows into TRY deposits and the recent rebuilding of TCMB reserves suggest that near-term risks to the programme remain relatively contained. However, we think the ongoing deterioration in the underlying BoP trend represents a more structural challenge, which is likely ultimately to require faster TRY depreciation and, in turn, a higher-for-longer policy rate path to keep dollarisation contained. Our forecast remains for the repo rate to stay at 37.00% through year-end. That said, the earlier-than-expected resumption of repo funding points to downside risks to our rate forecasts.

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