Turkish Lira: Policy normalisation supports carry appeal – ING

ING’s Chris Turner notes the Central Bank of the Republic of Türkiye (CBRT) has restarted one-week repo operations, shifting funding back to the 37% policy rate from the 40% overnight lending rate after a prior effective 300bp hike. He interprets this as a sign of confidence from local policymakers, with lower short-dated implied yields encouraging investors to maintain Turkish Lira carry positions.

CBRT repo restart boosts Lira carry

"In some welcome news out of Turkey, the Central Bank of Turkey announced over the weekend that it would be restarting the one-week repo operations."

"This means that funding operations switch to the 37% policy rate and away from the 40% overnight lending rate."

"Recall that the one-week repo operations were suspended in early March at the outbreak of US-Iran hostilities and the CBRT effectively delivered a 300bp rate hike."

"A return to more traditional funding policy looks to be a sign of confidence from local policymakers."

"TRY short-dated implied yields have dropped on the news and those positioned in the carry trade, expecting the lira to outperform the forwards, will likely stay invested."