Turkey's central bank will restart one-week repo auctions at its 37% benchmark rate, ending the temporary use of the 40% overnight lending rate. The change suggests policymakers believe the biggest economic danger from the conflict with neighboring Iran has passed, even though inflation remains far above comfortable levels.
The bank had stopped using its benchmark rate in March and moved to the more expensive overnight window after the war disrupted trade routes and pushed energy prices higher. That action was widely seen as a temporary, defensive step rather than a permanent policy shift. The bank also adjusted its inflation outlook, with consumer prices now expected to rise 28% by the end of the year. The revision reflects renewed pressure from energy and food costs since the war began, and it shows why the bank cannot loosen policy even as it returns to its standard rate.
In its late Sunday statement, the bank did not give a precise date for the restart of the auctions.
At a quarterly inflation presentation earlier this month, the central bank said the bank could bring back the weekly auctions. His aim, he said, was "to normalize liquidity conditions, not ease policy." He added, "The worst of the war is over." Because Turkey imports much of its energy from abroad, it has felt the war-related jump in global oil prices acutely.
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Annual inflation stood at 31.8% in July, far above the central bank long-standing 5% target. The 28% year-end forecast is still far above that goal, leaving the bank's credibility under scrutiny. It has missed its targets in the past, so the latest forecast carries extra weight.
Even 28% would be more than five times the official target.
The bank's credibility has been a recurring concern for investors, as previous policy missteps have led to currency crises and capital outflows. The current tightening cycle, which began after last year's elections, aims to restore confidence, but the war-related shocks have complicated that effort. The central bank's decision to return to its benchmark rate, while raising its inflation forecast, signals a careful balance between supporting growth and containing price pressures.
Tugberk Citilci, research director at Fiba Yatirim in Istanbul, said the bank appears to have dismissed the possibility of Brent oil aiming back above $100 a barrel. He called the timing of the move "a surprise" for the market. The return to 37% is conditional.
If energy costs jump again, the central bank could quickly bring back the 40% emergency rate. The key risk is that inflation remains tied to global power prices and the lira stays sensitive to fresh Middle East tensions. Although the emergency rate is no longer in use, the central bank has not abandoned its fight against inflation.
The 28% forecast means borrowing costs will remain high, squeezing households and businesses. The move back to 37% should be seen as a return to standard operations, not a reduction in borrowing costs. If the conflict resumes or energy prices spike again, the emergency rate could return quickly.
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