Key Moments
- Commerzbank’s Tatha Ghose expects the CBRT to keep the one-week repo rate at 37.0% while hinting at future corridor normalization once war-related risks subside.
- Market funding has shifted away from the 37.0% one-week repo toward the 40% overnight lending facility since the Iran shock, making the official policy rate less indicative of actual conditions.
- Ghose argues that any corridor easing or discussion of rate normalization would be a dangerous signal for the Turkish Lira (TRY) given re-accelerating core inflation, fragile FX reserves, and deteriorating expectations.
CBRT Seen Holding Headline Rate but Adjusting Operations
Tatha Ghose at Commerzbank expects the Central Bank of the Republic of Türkiye (CBRT) to keep its main one-week repo rate unchanged at 37%. At the same time, he anticipates that the central bank could use its upcoming communication to indicate that it is prepared to normalize the interest-rate corridor and resume weekly repo operations once war-related risks diminish.
Ghose cautions that such an operational shift, even without a formal move in the headline rate, could be interpreted as a dovish signal at a time when the Turkish Lira (TRY) remains under strain. He highlights that the combination of re-accelerating core inflation, fragile foreign-exchange reserves, and deteriorating expectations continues to weigh on the currency.
Effective Policy Rate Diverges From Official Repo
According to Ghose, the market focus on the 37.0% one-week repo rate is misleading because it is not currently the effective policy rate. He notes that since the Iran shock, the CBRT has largely stepped away from providing meaningful liquidity via the one-week repo facility.
Instead, the central bank has steered market funding toward the overnight lending window, where the rate stands at 40%. As a result, the overnight lending facility has effectively taken over as the primary reference for market funding costs, reducing the practical relevance of the repo rate in the short term.
| Policy Tool | Stated Rate | Current Role |
|---|---|---|
| One-week repo rate | 37.0% | Official policy rate, but not the main source of market funding |
| Overnight lending window facility | 40% | Key operational rate guiding market funding since the Iran shock |
Risks Around ‘Technical Normalization’
Ghose notes that the CBRT may opt to leave the repo rate unchanged while simultaneously signaling a willingness to “normalize” the corridor structure and restore weekly repo operations as soon as the war backdrop becomes less acute. He points out that some observers might describe this as a form of “technical normalisation.”
He also acknowledges the possibility that the central bank could combine such an operational message with a cautionary statement that “it is not time, yet,” particularly in light of the recent sharp rise in oil prices, including as recently as yesterday.
Potential for Misinterpreted Dovish Signals
Ghose warns that even marginal easing in the corridor or discussing when interest rates might be “normalised” lower risks sending an unhelpful message to markets. In his view, it could create a perception that current high rates are solely the result of unavoidable external shocks rather than domestic policy challenges, and that they would be quickly reduced once external conditions improve.
He emphasizes that Commerzbank does not share this assessment:
“Against this backdrop, even subtle corridor easing, or talk about when interest rates could be “normalised” back down sends the wrong signal – portraying a picture as if the rate is only high because of unavoidable external circumstances, and no policy failure at home – that, as soon as external conditions allow, rates could come back down.”
“Needless to say, we thoroughly disagree with this assessment. FX reserve trends are not comfortable, inflation expectations have begun to worsen again, and the balance of payments remains vulnerable. The lira will continue to be under pressure.”
Implications for the Turkish Lira
Given these factors, Ghose argues that the TRY remains vulnerable. He points to uncomfortable FX reserve dynamics, renewed deterioration in inflation expectations, and ongoing balance-of-payments fragilities as reasons why the currency is likely to stay under pressure.
From this perspective, any indication from the CBRT that policy might soon be eased – whether through the corridor or through hints about future rate cuts – is viewed as a potentially dangerous signal for investors focused on Turkish assets and the broader FX outlook.
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