Turkey: CBRT likely to hold before two Q4 rate cuts - ING

ING’s Muhammet Mercan notes the Central Bank of the Republic of Türkiye (CBRT) has normalised liquidity via weekly repo auctions, bringing effective funding costs down to the 37% policy rate. ING expects the CBRT to hold rates at the September meeting, then deliver two 100bp cuts to 35% in the fourth quarter, with further Gulf conflict escalation posing upside inflation risks and the policy rate seen at 35% by 2026.

Liquidity normalisation and planned cuts

"Towards the end of August, the Central Bank of Turkey took a step to normalise liquidity and started weekly repo auctions."

"Accordingly, the effective cost of funding and TLREF dropped directly to the level of the policy rate at 37% from 40%."

"The CBRT is likely to remain on hold in the September meeting this Thursday after this liquidity move."

"We see two 100bp cuts to 35% in the last quarter given the weaker-than-expected 2Q GDP data and further gradual cooling of inflation, though any further escalation in the Gulf conflict would add to upside risks."

"We see the policy rate at 35% by the end of 2026."