Turkish bank shares rallied on Monday after the central bank quietly ended an emergency lending program that had been squeezing lenders for months. The Borsa Istanbul Banks Index climbed as much as 4.1% before settling around 3.1% by 1:51 p.m. in Istanbul, putting the sector on track for its strongest finish since mid-July. The wider BIST 100 index barely moved, up just 0.1%.
Since March, when the Iran war rattled markets, the central bank had been lending to banks overnight at a punishing 40% rate. Late Sunday, it switched back to its standard one-week repo auctions at 37%, its main policy rate. The announcement came after market hours, giving traders time to position before Monday's open.
That three-point cut in borrowing costs is a direct boost to bank profits. It also came earlier than expected. The next rate-setting meeting is scheduled for Sept. 10, and many economists had anticipated the change would wait until then. The early move suggests policymakers wanted to signal a return to more normal liquidity management without waiting for the scheduled decision.
When central banks shift course overnight, the free Always Be Buying E-Book helps you stay invested
Bond investors read the same signal. Two-year government bond yields dropped 58 basis points, while ten-year yields fell 25 basis points. Falling yields mean investors are increasingly convinced that interest rates are heading down, not up. The yield curve shift also points to growing expectations that the central bank will follow through with further easing in the coming months.
Now that conditions have calmed, the bank is reversing course. The emergency facility had made it expensive for banks to cover daily shortfalls, effectively tightening financial conditions beyond the stated policy rate.
Annual price growth slowed for two straight months, reaching 31.8% in July. That is still painfully high, but the direction is what matters. The central bank sees inflation ending the year at 28%, while analysts surveyed by the bank expect 29%.
The bank raised its own forecast from 26%, a sign it wants to be realistic rather than rosy. The slower inflation path gives policymakers room to begin unwinding some of the emergency tightening without immediately reigniting price pressures.
Monday's bounce does not erase a rough year. Turkish banks are still down 1.7% in 2025, and they had trailed the rest of the market by the most in two years earlier this month.
The lesson for anyone watching Turkish markets is that monetary policy is the story that matters most for banks. If inflation keeps cooling and the central bank follows through with more cuts, this could be the start of a real turnaround. If inflation stalls, the rally could fade as quickly as it arrived. For now, banks are catching up - and the market is betting the central bank is behind them.
Sudden rate changes like this reward patience, so grab the Always Be Buying E-Book for a steady plan