Türkiye’s central bank on Thursday announced it had suspended one-week repo auctions and raised its overnight lending rate to 46%, in a move economists interpret as a stricter monetary policy approach.
The announcement came following an interim monetary policy committee meeting, as the central bank convened on Thursday to discuss recent developments that may pose risks to the inflation outlook.
The Turkish lira and stocks sold off aggressively on Wednesday after authorities detained Istanbul Mayor Ekrem Imamoğlu as part of investigations into alleged corruption and terror links.
The lira strengthened to 37.5 against the U.S. dollar after the central bank's decision from 37.99 immediately beforehand. The currency had slid to a record low of 42 per dollar on Wednesday before recouping most of the day's losses.
After the meeting on Thursday, the Central Bank of the Republic of Türkiye (CBRT) raised the overnight lending rate by 200 basis points from 44%.
Traders and analysts said overnight market interest rates could be 350 to 400 basis points higher after the move, as the central bank will fund the market from rates higher than its current policy rate of 42.5%.
In a statement, the bank said it kept its policy rate and overnight borrowing rate constant at 42.5% and 41%, respectively. It separately also said it would pause one-week repo auctions "for a period of time."
"This regulation provides flexibility to increase overnight market interest rates, which have recently been 42%, to 46%. Instead of losing reserves, it is an important and correct step to show that your hands are not tied by making this decision," Hakan Kara, former chief economist at the central bank, said.
"After this decision, the expectation of a rate cut in April will probably disappear," Kara wrote on social media platform X.
The bank also said it had introduced lira and foreign exchange measures "to limit market volatility" and additional actions could be taken to maintain the functioning of financial markets if necessary.
"Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen."
The central bank has cut its key rate three times since December by a total of 750 basis points, to 42.5%, as annual inflation has eased to 39%.
In mid-2023, the bank began aggressively tightening policy as part of a shift to more conventional policymaking after years of ease policy.
The central bank's next rate-setting meeting is scheduled to take place on April 17.
