Türkiye’s central bank unveils new measures to tackle market volatility

The Central Bank of the Republic of Türkiye (CBRT) announced new measures to address recent volatility in financial markets following an interim Monetary Policy Committee (MPC) meeting held on Thursday.

According to the new decisions, the CBRT raised the overnight lending rate—the interest rate at which banks borrow funds from the central bank overnight—to 46%. Meanwhile, it kept the policy rate, known as the one-week repo auction rate and considered the main benchmark for market interest rates, unchanged at 42.5%.

The overnight borrowing rate—the rate at which banks lend excess funds to the central bank—was also maintained at 41%

To further stabilize financial markets, the CBRT stated that it had introduced these measures to manage Turkish lira and foreign exchange (FX) liquidity, aiming to limit market volatility. The bank emphasized that additional steps would be taken if necessary to maintain orderly market conditions.

“Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen,” the bank stated.

A detailed summary of the bank’s discussions and decisions will be published within five working days, it added.

One-week repo auctions were suspended temporarily

CBRT also announced additional measures specifically targeting fluctuations in foreign exchange rates, stating that it will begin Turkish lira-settled foreign exchange forward-selling transactions.

This move is designed to prevent abrupt swings in the value of the lira, provide greater predictability in the currency market, and maintain stable foreign exchange liquidity. By offering these forward contracts, the CBRT seeks to reassure investors and businesses that the central bank will act to reduce speculative volatility.

“The Central Bank of the Republic of Türkiye will start conducting Turkish lira-settled foreign exchange forward selling transactions in order to ensure the sound functioning of the foreign exchange market, prevent possible volatilities in exchange rates, and stabilize foreign exchange liquidity,” the statement read.

CBRT also announced on Friday a temporary suspension of one-week repo auctions—which is a primary tool for injecting short-term liquidity into the banking system. This measure is aimed at tightening liquidity conditions and reinforcing the bank’s broader monetary policy stance.

In a further statement, the Turkish central bank also unveiled its decision to issue liquidity notes with maturities of up to 91 days, aimed at serving as a tool to absorb excess cash from the banking system, regulate money supply, control inflation, and reinforce its tight monetary stance.

Those measures followed a sharp drop in the Turkish lira earlier this week. On Wednesday, the currency fell by as much as 12%, hitting a record low of 41 against the U.S. dollar before stabilizing around 38.

The volatility triggered concerns among investors and prompted the central bank to take swift action to stabilize markets and restore confidence in the financial system.