At What Interest Rate Will the Central Bank of Turkey (CBRT) Lend?

Following its surprise policy shift last month, the Central Bank of the Republic of Turkey (CBRT) returned to the interest rate corridor system used during Erdem Başçı’s term. Since then, the CBRT has been funding the market at the upper bound of the corridor, effectively lending at the highest available rate.

While the CBRT continues with the corridor approach, there is growing debate among financial institutions about whether lending to banks will occur at the official policy rate or the upper bound of the corridor (overnight lending rate). This distinction is critical, as the actual funding rate used by the CBRT directly impacts deposit rates and loan costs for consumers and businesses.

Here’s a summary of expert opinions from three leading institutions. Most expect the effective funding rate to remain at 49.0%.

BBVA: CBRT May Raise the Effective Funding Rate Towards 49%

Analysts at BBVA believe that due to ongoing macroeconomic uncertainty and sustained FX demand from residents, the CBRT may raise the average funding rate to around 49%, while also prioritizing foreign reserve accumulation.

In their post-rate-decision analysis, BBVA stated:

“Considering the sharp drop in reserves since mid-March, we assess that the CBRT is now prioritizing efforts to contain strong FX demand, particularly from households.”

The report adds that, despite previous messaging around the efficient use of monetary policy tools, the CBRT has left the door open for further monetary tightening if stress persists.

Regarding inflation, BBVA noted:

“Even with tighter financial conditions and favorable oil price shocks offering a more positive inflation outlook, the CBRT is opting for caution due to uncertainties and continued strong domestic demand expected in Q1 2025.”

Akbank: CBRT Likely to Maintain Funding Near Upper Bound for Now

Akbank analysts project that the CBRT will prefer funding closer to the upper bound of the corridor for the time being, adjusting its liquidity strategy accordingly.

Their analysis states:

“In the coming period, the volume of 1-week repo auctions will determine the level of the weighted average funding cost. A funding rate close to the upper bound could result in further increases in deposit rates.”

They also suggest that large volumes of liquidity via Open Market Operations (OMO) are not expected initially, but if market conditions allow, the effective rate may converge toward the policy rate, potentially paving the way for future rate cuts.

“It’s early to discuss rate cuts, but a narrowing gap between the average funding rate and the policy rate would be a key forward indicator.”

İş Yatırım: Interest Rate Cuts Could Begin in June

İş Yatırım believes the primary driver of the April tightening was reserve depletion. Since March 18, gross reserves have dropped by $26 billion and net reserves by $31 billion. Adjusting for swaps and rising gold prices, the real losses reach $39 billion gross and $44 billion net.

In their analysis:

“Domestic political tension and global trade wars triggered by the U.S. have forced monetary policy to make the Turkish lira more attractive in an effort to slow reserve losses.”

Assuming political and global shocks fade gradually, İş Yatırım forecasts the CBRT could start cutting rates as early as June, in 200–300 basis point steps.

“We don’t believe recent inflationary pressures—such as FX shocks, agricultural frost, and electricity hikes—will be enough to prevent a return to easing.”

Their year-end forecasts remain at 30% inflation and 35% policy interest rate.

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