Turkey's central bank is reopening a key liquidity channel for the country's banking system, resuming one-week repo auctions at its 37% policy rate after suspending them earlier this year, when the Iran conflict sent energy prices sharply higher.

The decision amounts to a controlled easing of financial conditions without a formal reduction in interest rates. Banks that had been compelled to rely on more expensive overnight lending facilities, priced at 40%, can now access cheaper weekly funding at 37%.

The CBRT's liquidity tool

The one-week repo auction is the Central Bank of the Republic of Türkiye's (CBRT) primary instrument for injecting liquidity into the banking system. When the Iran conflict erupted and energy costs surged, the central bank took the tool offline, pushing banks into the overnight corridor, where borrowing costs range from 35.5% at the low end to 40% at the high end.

The policy rate has stood at 37% since January 2026, when the central bank lowered it by a single percentage point from 38%. Turkish headline inflation peaked at 32.1% in June 2026 after the Iran war drove energy costs higher across the region. That pass-through is unusually direct in Turkey, which relies on imports for the bulk of its oil and natural gas, leaving the inflation outlook exposed to swings in regional energy markets. Inflation has since begun to moderate from that peak, and that moderation is what underpins the CBRT's decision to reopen weekly liquidity operations.

The rate-cut roadmap

The repo resumption is not the only signal coming from the central bank. Forward guidance indicates that further rate cuts of 100 basis points are on the table for both October and December 2026, which would bring the policy rate down to 35% by year-end. The step-by-step calibration extends the orthodox framework the CBRT rebuilt after the May 2023 elections, when it raised the policy rate from 8.5% to 50% by March 2024 before starting to lower rates in December 2024.

The overnight corridor tells its own story. With the borrowing rate at 35.5% and the lending rate at 40%, the central bank is maintaining a 4.5 percentage point spread that gives it room to maneuver without adjusting the headline rate.

Implications for markets

For Turkish banks, the immediate effect is lower average funding costs. While overnight lending at 40% was the only game in town, net interest margins were under pressure. The return of 37% weekly funding provides relief without requiring the central bank to ease policy formally.

The implied rate path also carries implications for bond markets. If 35% by December is genuinely in play, Turkish government debt with maturities beyond that horizon becomes more attractive on a total-return basis. The 32.1% peak inflation reading in June still leaves real rates positive at current levels, though that cushion thins quickly if inflation proves stickier than the CBRT expects.

The pace of the planned cuts tempers the picture. Two 100-basis-point reductions within three months is an aggressive schedule for a country where inflation is still running above 30%. If oil and gas prices resurge amid a renewed escalation of the Iran conflict, the repo resumption could look premature in hindsight, and the rate cuts might never materialize. The checkpoints for judging that balance are already scheduled: monthly inflation releases from TURKSTAT ahead of the October rate decision, and the central bank's weekly funding data, which will show how quickly banks migrate from the 40% overnight facility back to the 37% auctions.