MNI CBRT Review - Apr'26: Funding Rate Still Elevated

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Executive summary:

• The CBRT kept the one-week repo rate unchanged at 37%, in line with expectations.
• With one-week repo auctions still suspended, the effective funding rate remains higher at 40% as liquidity continues to be channelled through the overnight window.
• This leaves the Bank with scope to ease financial conditions by up to 300bps – without a formal rate cut – simply by resuming repo auctions, though any such move will depend heavily on the trajectory of the Middle East conflict and prospects for sustained de-escalation.

Looking ahead, the trajectory of the Iran conflict will be key for policy timing. A credible de-escalation would likely see the CBRT first guide the effective funding rate lower – from 40% toward 37% – via a gradual reopening of the repo channel, before resuming rate cuts later in the summer. With the next meeting not until June, an earlier resolution in the Middle East could allow the Bank to restart auctions ahead of that meeting, opening the door to a formal easing step as soon as its next meeting (though some analysts see the September meeting as a more likely start point for a resumption of rate cuts). 

Note that the CBRT will release its next Inflation Report on May 14. Currently, the central bank has set an interim inflation target of 16%, forecasting headline inflation to end the year within a 15-21% range. Even prior to the war in Iran, this projection was widely viewed as optimistic, and most analysts now expect inflation to end the year closer to the high-20s.