Turkey Rates and the CBRT: Lira, Reserves, Inflation — 2026-10-18

Top developments

Governor Karahan Endorses Managed Depreciation Strategy

In meetings with investors in Bangkok on October 14, Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan explicitly stated that the bank is allowing the lira to slide more quickly to prevent sharper weakness in the longer term. This "managed depreciation" approach aims to absorb current pressures without triggering a disorderly collapse later, a stance highlighted by Commerzbank analysts as an attempt to remove immediate devaluation risks.

Net Reserves Rebound Strongly in Early October

CBRT data released in mid-October showed a significant recovery in foreign exchange reserves. For the week ending October 9, net reserves excluding swaps increased by $6.3 billion to reach $44.2 billion, while gross reserves rose to $171.6 billion and net reserves (including swaps) climbed to $57.7 billion. This marks a reversal from earlier declines, with swap-excluded net reserves having dipped to $37.9 billion in early October before this weekly uptick.

Inflation Expectations Tick Up in CBRT Survey

The CBRT’s October Market Participant Survey revealed a slight rise in inflation expectations. The year-end CPI inflation forecast for 2026 increased from 29.61% to 29.63%, while the 12-month ahead expectation rose from 23.70% to 23.89%. Despite these marginal increases, the 24-month expectation declined, and the year-end USD/TRY forecast settled at 51.55, indicating a mixed view on long-term currency stability versus short-term price pressures.

Lira Deposits Hold Firm Despite Fund Crisis

Despite the ongoing liquidation crisis affecting 131 investment funds, where some investors reported up to 90% losses, resident preference for the lira remains robust. The CBRT noted that outflows from investment funds have not significantly weakened the demand for lira deposits, with Goldman Sachs analysts suggesting that exiting fund investors are primarily moving capital into local currency deposits rather than foreign exchange.

Local view

Local financial media and analysts are positioning for a potential rate cut at the next Monetary Policy Committee (PPK) meeting. According to a report by Memurlar.Net, economists widely anticipate a 100 basis point reduction, bringing the policy rate down from 37% to 36%, citing the recent slowdown in inflation prints and the need to ease liquidity strains.

Capital.com.tr and Cumhuriyet highlighted the nuances in the CBRT survey, noting that while year-end inflation expectations edged up, the market’s view on the dollar/TL rate for the year-end remained relatively stable at 51.55, suggesting confidence in the central bank’s ability to manage the exchange rate through the "managed depreciation" strategy.

Context & numbers

• Policy Rate: 37.00% (held steady for multiple meetings; consensus expects a cut to 36.00% in the next decision).
• Inflation (Sep 2026): Annual CPI at 29.73%, monthly CPI at 1.84%.
• Real Yield: The policy rate is approximately 7.27 percentage points above annual inflation.
• Reserves (Week of Oct 9):
  • Gross Reserves: $171.6 billion.
  • Net Reserves: $57.7 billion.
  • Net Reserves (ex-Swaps): $44.2 billion (up $6.3 billion weekly).
• Survey Forecasts (Oct 2026):
  • Year-end USD/TRY: 51.55.
  • Year-end CPI: 29.63%.
  • 12-Month CPI: 23.89%.

On the radar

• Next PPK Meeting: Markets are closely watching for the Monetary Policy Committee decision, with strong consensus for a 100 bps cut to 36%.
• MSCI Index Freeze: On October 16, MSCI announced a freeze on index adjustments for Turkish stocks due to concerns over free-float share reliability, which may impact foreign inflows and market sentiment.
• Fund Liquidations: The process of liquidating 131 investment funds continues, with ongoing scrutiny on how these outflows impact broader liquidity and whether they continue to flow into lira deposits as observed in early October.