Turkey’s overnight lira interest rate has fallen sharply toward the central bank’s 37% policy rate after policymakers restarted one-week repo auctions for the first time since March. The Turkish lira overnight reference rate dropped to 36.94% on August 24, down from 39.86% on August 21, a decline of roughly 292 basis points.
The move does not represent a new policy-rate cut. Instead, it reflects a change in how the central bank supplies liquidity to the financial system after months of funding conditions that kept overnight market rates close to the 40% upper boundary of its interest-rate corridor.
Key Overview
- Turkey’s overnight reference rate fell to 36.94% on August 24 from 39.86% on August 21.
- The central bank resumed one-week repo auctions after suspending them on March 1.
- The first renewed auction supplied TRY1 billion at the 37% policy rate.
- Banks submitted TRY9.553 billion in bids for the August 24 auction.
- Turkey’s policy rate remains unchanged at 37%.
- Annual consumer inflation stood at 31.75% in July 2026.
- The central bank currently expects inflation to end 2026 at 28%.
Repo Auctions Bring Market Rates Back Toward 37%
The first renewed liquidity operation marked a significant shift in money-market conditions. According to official repo auction records, banks submitted TRY9.553 billion of bids in the August 24 auction, while TRY1 billion was accepted at a simple annual interest rate of 37%.
The seven-day funds were scheduled to mature on August 31. Further auctions followed on August 25 and August 26, each conducted at the same 37% rate.
As cheaper one-week central bank funding returned, the overnight market rate quickly moved down from levels close to 40%. Historical overnight-rate data show the rate at 36.94% on August 24 and 36.90% the following day.
That means the roughly 300-basis-point decline reflects liquidity normalisation rather than a formal reduction in Turkey’s benchmark interest rate.
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Why Turkey Suspended Repo Auctions in March
The central bank suspended one-week repo auctions on March 1 amid severe financial-market volatility associated with the escalating Middle East conflict.
Rather than funding banks predominantly through the 37% one-week repo rate, policymakers relied more heavily on overnight liquidity at the upper end of the interest-rate corridor.
The central bank later explained that the measure helped push the average cost of funding toward 40%, effectively tightening financial conditions without increasing the official policy rate.
At the time, geopolitical uncertainty was driving higher energy and commodity prices while creating additional risks for the lira and Turkey’s inflation outlook.
Policy Rate Remains Unchanged Despite Market Rate Drop
Turkey’s official one-week repo policy rate remains 37%, where it has been since policymakers reduced it from 38% in January.
At the July monetary-policy meeting, policymakers maintained the 37% benchmark, alongside a 40% overnight lending rate and a 35.5% overnight borrowing rate.
The return of repo auctions therefore narrows the gap between the effective money-market rate and the official benchmark.
This distinction is important for investors. A decline in overnight funding rates can loosen day-to-day financial conditions and reduce banks’ marginal funding costs, even when the headline policy rate remains unchanged.
Inflation Still Limits Scope for Aggressive Easing
Turkey’s inflation challenge remains substantial. Consumer prices increased 31.75% year-on-year in July, while monthly inflation was 1.78%.
Policymakers have also become slightly more cautious about the outlook. In August, the central bank raised its 2026 year-end inflation forecast to 28%, partly because of energy, commodity, food and administered-price pressures.
The latest liquidity move therefore suggests that policymakers believe financial-market conditions have stabilised enough to unwind an emergency tightening measure while retaining a restrictive overall monetary stance.
For markets, the key question is whether the return to 37% repo funding becomes a precursor to eventual conventional rate cuts or simply restores normal liquidity operations while inflation remains elevated.
Sources: Central Bank of the Republic of Türkiye / Reuters / Turkish Statistical Institute / Investing.com
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