🚨 Welcome Back, Interest Rate Corridor
In an unscheduled meeting yesterday, the Central Bank of the Republic of Turkey (TCMB) took bold action in response to rising financial market volatility and inflation risks.
🔹 The overnight lending rate (upper bound of the interest rate corridor) was raised to 46.0%.🔹 The weekly repo rate was held at 42.5%, and the overnight borrowing rate remained at 41.0%.
While initially viewed as symbolic, the TCMB cancelled all weekly repo auctions, effectively shifting its main funding tool to the overnight lending facility. This move redirected banks toward more expensive overnight funding and increased the average cost of funding (AOFM) to 46.0% without changing the policy rate.
If liquidity stress intensifies further, the TCMB could activate the Late Liquidity Window at 47.0%, pushing AOFM even higher and making lira funding more costly.
🎯 A Step Back in Predictability?
This shift is reminiscent of the pre-2016 era, when the TCMB operated a wide corridor system, prioritizing flexibility over predictability. That policy, widely criticized at the time, is now being revisited. If volatility subsides quickly, these steps may be temporary. But history suggests that delayed reactions often result in even higher interest rate hikes down the line.
⚠️ Risks Ahead:
Managing FX volatility may require uncomfortably large foreign reserve usage.
Short-term fixes may fall short of restoring price and financial stability.
🔍 What’s Next for Policy?
The clearest signal from TCMB’s latest actions? A rate cut at the April 17 MPC meeting is now highly unlikely.
📈 Rising exchange rate volatility is almost certain to push year-end inflation expectations higher, forcing the central bank into a wait-and-see mode for April.
📅 Key Upcoming Dates:
April 3: March Inflation Data
April 17: Monetary Policy Committee Meeting
May 5: April Inflation Data
May 22: Inflation Report Presentation
In its policy note, the TCMB also signaled its readiness to take additional steps to stabilize the markets if needed. Following recent sharp moves in the exchange rate, the Bank announced it would begin TL-settled forward FX sales to limit FX volatility and ensure liquidity.
📊 Market Reaction:
On March 19, USD/TRY hit a record high of 41.2 before closing at 38.0 — a 3.8% daily gain.
After yesterday’s measures, the pair eased to 37.5.
BIST 100 Index: Down 0.50% yesterday (after a 8.7% plunge on March 19)
2-Year Bond Yield: Rose another 1.3 points to 40.19%, after Tuesday’s 1.8-point jump to 38.85%
🚨 Trade War Watch: EU Hits Pause
The EU has delayed its planned retaliatory tariffs against the U.S., which were scheduled to begin on April 1, in an effort to give negotiations more time.
🧾 Background:
The U.S. imposed a 25% tariff on steel and aluminum starting March 12.
The EU responded with €26 billion in countermeasures, including:🔸 A 50% tariff on U.S. whiskey, yachts, and motorcycles (originally set for April 1)🔸 Additional food tariffs (scheduled for April 13)
Under the new plan, all measures are now set to kick in on April 13, if no deal is reached.
Meanwhile, Donald Trump has threatened a 200% tariff on all alcoholic beverages imported from the EU if whiskey duties are not removed swiftly.
⛽ OPEC’s Surprise Production Cut
OPEC+ released a new plan Thursday requiring seven member countries to implement additional production cuts.
🛢️ These cuts are intended to offset overproduction and will exceed the group’s planned output increases for next month.📆 The new restrictions will remain in place until June 2026.💰 Following the announcement, Brent crude jumped from $70 to $72.5 per barrel.
🏦 Bank of England Stays on Hold
The Bank of England kept its policy rate steady at 4.5% in its latest meeting, citing global uncertainties and upcoming domestic tax hikes.
📊 The vote: 8–1 in favor of holding rates steady📈 Inflation concerns stem in part from:
A rise in employer national insurance contributions from 13.8% to 15.0% (effective April 6)
A 6.7% increase in the National Living Wage for workers 21 and older
Broader minimum wage hikes across all age groups
🏛️ BoE Governor Andrew Bailey suggested a gradual rate-cutting cycle may begin in coming months, leaving the door open for easing later this year.
💱 GBP/USD dipped from 1.2970 to 1.2955, then recovered slightly to close at 1.2965.
🌐 Global Growth Signals: Mixed and Murky
Recent data releases offered a fragmented picture of global economic momentum.
🇨🇳 China
Industrial Production: Fell to 5.9% YoY (from 6.2%)
Retail Sales: Rose to 4.0% YoY (from 3.7%)
🇺🇸 United States
Industrial Production: Up 0.7% MoM (previous: 0.3%; forecast: 0.2%)
Retail Sales (Control Group): +1.0% MoM (previous: -1.1%; forecast: 0.2%)
🇯🇵 Japan
Industrial Production: Monthly contraction deepened to -1.1%, up from -0.3%
📉 Takeaway:Asia is showing signs of growth fatigue, while the U.S. posts a mild rebound. But the outlook remains clouded by ongoing trade tensions and monetary policy uncertainties.
📬 Stay with us for more real-time insights on global markets, central banks, and macro trends.🧠 Have questions? Want charts? Let us know and we’ll include them in the next edition!