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Economy April 20, 2026 05:41 AM

BofA Sees Turkey’s Central Bank Likely to Keep Effective Funding at 40%; Hike to 40% Still on the Table

Bank of America highlights an intra-meeting choice between holding the one-week repo at 37% with funding at the upper band or raising the repo to 40% to shore up credibility

By Jordan Park
BofA Sees Turkey’s Central Bank Likely to Keep Effective Funding at 40%; Hike to 40% Still on the Table

Bank of America expects Turkey's central bank to maintain its effective funding rate at 40% when policymakers meet on April 22, though the decision is contested. The bank notes a binary choice for the monetary authority - keep the one-week repo at 37% with funding at the upper band or lift the repo to 40% - and says improving external conditions make a hold more likely even as a hike would address inflation risks and financing needs.

Key Points

  • Bank of America expects the central bank to keep the effective funding rate at 40% at the April 22 meeting - impact: financial markets, banking sector.
  • The central bank can either keep the one-week repo at 37% with funding at the upper band or hike the repo to 40% - impact: government financing and investor confidence.
  • Improving global sentiment and reserve recovery raise the odds of leaving the one-week repo at 37%, but BofA leans toward a 300 basis point hike to 40% to bolster credibility - impact: broader markets and inflation expectations.

Bank of America projects that Turkey's central bank will leave its effective funding rate unchanged at 40% at the monetary policy committee meeting scheduled for April 22, while acknowledging that the outcome remains closely contested.

Hande Kucuk, an economist at the bank, does not expect a change to the central bank's 40% effective funding rate at the upcoming meeting. The policy committee faces a distinct operational choice: either keep the one-week repo rate at 37% and rely on funding placed at the upper band to preserve the 40% effective rate, or lift the one-week repo rate up to 40%.

Bank of America flags two forces pulling in opposite directions. On one hand, improving global sentiment and a recovery in external reserves increase the plausibility of retaining the one-week repo at 37% while keeping overall funding at 40%. On the other hand, the bank still leans toward a 300 basis point increase in the one-week repo to 40% as a means to reinforce the central bank's credibility.

The analysis notes that elevated inflation risks and financing needs provide rationale for a rate increase. Those considerations, combined with the central bank's current operational stance - an effective funding rate at 40% alongside a one-week repo at 37% - frame the committee's decision.

Turkey's central bank will deliver its rate decision on April 22. The meeting is set against a backdrop in which policymakers must weigh credibility concerns against signs of improving external conditions.

Context and implications

  • The policy choice is operational as much as it is symbolic: maintaining the current one-week repo at 37% while funding remains at 40% preserves the existing effective rate without an on-paper repo hike.
  • A 300 basis point repo hike to 40% would align the policy rate with the effective funding rate and serve as a stronger signal of resolve to tackle inflation and financing pressures.
  • Policy makers face a trade-off between signaling credibility and responding to improving external conditions.

Observers will watch the April 22 announcement closely for how the central bank balances those priorities.

Risks

  • Elevated inflation risks could prompt a tightening decision to raise the one-week repo to 40% - this affects borrowing costs across the economy and financial markets.
  • Ongoing financing needs may increase pressure on policy makers to raise rates to support credibility - this has implications for government financing and banking sector stability.
  • Balancing credibility concerns against improving external conditions creates uncertainty about the committee's final choice, which could influence market reactions and short-term volatility.

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