The CBRT eases with one hand while reserves drain from the other

Two relief steps on the same day

On the evening of 1 October, announcement no. 2026-43 from the CBRT raised the growth cap on lira loans to SMEs from 4.5% to 5%. According to Ekonomi Gazetesi, the same cap had been cut from 5% to 4.5% on 23 May. The new decision reverses that tightening.

The same announcement also lowered the blocked reserve ratio, the share of reserve requirements held frozen without interest. Bloomberg HT reports that the ratio fell from 40% to 35% at banks with assets above 500 billion lira. At banks with assets of 100–500 billion lira, it fell from 30% to 15%.

Relief came on the capital markets side the same day. Through bulletin no. 2026/67, the CMB opened interim payouts in 65 of the 131 funds under liquidation. Part of the money will thus be paid out before liquidation ends. Each investor will receive at most 1 million lira per fund.

According to Ekonomim, about 266,000 investors and 301 billion lira are waiting in money market funds. The BIST 100 rose 2.53% the same day to 12,249 points. On 30 September, three investment banks were transferred to the TMSF, carrying the crisis into banking. Both steps aim to stop it spreading into the credit and deposit channels.

The other hand: reserves and FX deposits

The cost shows up in the reserve data released the same day. CBRT data show gross reserves fell by 3.2 billion dollars to 171.2 billion dollars in the week of 25 September, a fifth consecutive weekly decline. Net reserves excluding swaps fell to 39.9 billion dollars. That measure is the real FX capacity left once currency swaps with banks are stripped out.

This measure lost 3.2 billion dollars in a week and 16 billion dollars in a month. According to Ekonomim, foreigners sold 1.3 billion dollars of bonds over the two weeks from 18 to 25 September. In the latest week, 409.9 million dollars left government bonds and 434.4 million dollars left private sector debt instruments.

At home, household FX deposits rose by 1.024 billion dollars the same week and by 6.175 billion dollars over three weeks. That 6.175 billion dollars sits at the centre of our argument. Households whose money is locked in funds are moving their remaining lira savings into foreign currency.

The 1 million lira interim payout could accelerate this flow. If part of the released lira moves into foreign currency at a rate of 49.1225, the demand will again be met from CBRT reserves. How much of the interim payouts will turn into foreign currency cannot yet be measured; this item could not be verified.

Prices are calm because calm is being bought

The currency and sovereign risk reflect this pressure only to a limited degree. Investing.com data show the dollar at 49.1225 lira on 1 October, up about 0.2% from 49.0175 on 30 September. The 10-year yield eased from 32.84% to 32.82%, and five-year CDS stood at 248.74 basis points on 29 September.

Foreign flows are also diverging. There was a net equity inflow of 358.6 million dollars the same week, while the outflow came from lira bonds. Such narrow price moves suggest the currency is being steadied with reserves. This reading could not be verified, because the amount of direct FX sales is not officially disclosed.

Has our 25 September reading broken down?

In our deep analysis of 25 September, the most likely scenario, at 50%, was a controlled defence with tight liquidity. That scenario had three parts: leave the policy rate alone, tighten funding and slow the use of reserves. The 1 October decision clearly breaks the second part. The cuts to the SME cap and the blocked reserve ratio are not tightening but targeted easing.

The other two parts hold for now. The policy rate has been at 37% since 10 September, and the next decision is due on 22 October. The weekly loss in net reserves excluding swaps fell from 6.8 billion dollars in the week of 18 September to 3.2 billion dollars in the week of 25 September. Whether funding was shifted to the 40% overnight rate could not be verified tonight from a primary source.

The honest reading is this. The CBRT has moved from uniform tightness to a two-track stance. It is still defending on rates and the currency, while easing on credit and bank liquidity to stop the fund crisis spreading. We are therefore revising the tight liquidity component of H1. In the new framework, the cost of defence is shifting from liquidity to reserves.

The triggers of the old H3, a forced rate move, have not yet arrived. Net reserves, at 53.4 billion dollars, have not yet fallen to the 50 billion dollar threshold, and the dollar, at 49.1225 lira, is still below 50. Yet a loss of 16 billion dollars in a month on the measure excluding swaps suggests these thresholds are weeks, not months, away.

Calendar and thresholds

The first three weeks of October will test this two-track stance. Sources give different dates for TurkStat's September consumer inflation: Bloomberg HT says 3 October, AA says 5 October. The median expectation in the Bloomberg HT survey is 2.20% month on month and 30.30% year on year. The AA Finans survey shows 2.18% month on month.

From October, the petrol excise will rise every month, reaching 14.8277 lira a litre in December. Alongside the credit easing, this adds a new tax-driven step to inflation each month. It also narrows the room for a cut at the 22 October MPC meeting.

Three thresholds matter until 22 October. A fall in net reserves excluding swaps below 35 billion dollars would show the weekly erosion of 3 billion dollars continuing. Weekly growth in household FX deposits staying above 1 billion dollars would signal interim payouts turning into foreign currency. A dollar above 50 lira and CDS above 250 basis points would show the cost moving from reserves into prices.