The Central Bank of the Republic of Türkiye (CBRT) has moved to normalise liquidity conditions by launching weekly repo auctions towards the end of August. Following the change, the effective cost of funding and TLREF fell from 40% to the 37% policy rate, aligning market funding costs more closely with the official benchmark.
ING expects the CBRT to keep rates unchanged at the September meeting this Thursday. It then forecasts two 100bp cuts in the fourth quarter, which would take the policy rate to 35%, a path linked to weaker-than-expected second-quarter GDP and a gradual easing in inflation momentum. Any escalation in the Gulf conflict is framed as a source of upside inflation risk, while the policy rate is projected at 35% by the end of 2026.
Interest Rate Derivatives And Yield Curve Positioning
We believe derivative traders should position for a downward shift in the Turkish Lira (TRY) yield curve as the central bank normalizes its liquidity policy. Recent data shows the Turkish Lira Reference Interest Rate (TLREF) has already aligned with the 37% policy rate, down from previous highs near 40%. This shift suggests that the peak of the tightening cycle is behind us, opening up opportunities in interest rate derivatives.
We recommend entering receiver interest rate swaps (IRS) to lock in the current higher yields before the expected easing cycle begins. With economic growth cooling—as seen in the recently soft second-quarter GDP growth of just 2.5%—the central bank has clear domestic reasons to initiate rate cuts. Locking in fixed receive rates now allows traders to benefit as the benchmark policy rate falls toward our projected 35% by the end of the year.
FX Options Strategies And Short-Term Rates Outlook
In the foreign exchange options market, we suggest utilizing structured carry-trade strategies that pair high TRY yields with tail-risk protection. While a 35% interest rate still offers a lucrative yield cushion, rising geopolitical tensions in the Gulf threaten to drive crude oil prices up, which would pressure Turkey’s energy-import-dependent economy. Buying out-of-the-money USD/TRY call options will help hedge against any sudden currency depreciation triggered by these external inflation shocks.
For short-term bookrunners, we advise staying neutral on overnight repo futures ahead of this Thursday’s policy meeting on September 10. The central bank is highly likely to hold the policy rate steady at 37% to observe the lag effects of its recent liquidity injections. This temporary pause offers a strategic window to accumulate receiver positions in the two-to-three-month tenors before the first 100-basis-point cut materializes.
