37% Rates Shield Turkish Lira Carry Trade From Cuts

Turkish lira carry trade remains attractive even as ING expects the Central Bank of the Republic of Türkiye to keep rates at 37.00%, because the delay in easing preserves the yield cushion that investors are still being paid to hold.

That is the tension in ING’s latest call, published by FXStreet. Frantisek Taborsky expects no rate cut today, not because the easing story has disappeared, but because oil above $90/bbl, geopolitical stress, and tariff changes have made an early move harder to defend.

Türkiye's 37.00% rate keeps the Turkish lira carry trade alive

The core signal is simple: the CBRT is likely to pause at 37.00%, while keeping guidance tight enough to avoid sounding like it has opened a full rate-cutting cycle.

ING frames this as a tactical delay. The bank still expects rate cuts to return in 4Q, with rates reaching 35.00% at year-end. But today’s meeting, in its view, is more about preserving credibility than accelerating easing.

"We also expect hawkish guidance, with the CBRT stressing a meeting-by-meeting approach rather than opening the door to a rate-cutting cycle."

That phrase matters. A meeting-by-meeting approach tells investors the CBRT wants optionality. It can still cut later, but it doesn’t want markets to front-run a smooth path lower while oil and geopolitical risks are moving against it.

For the Turkish lira carry trade, that is a supportive setup. Investors get high nominal rates for longer, while the central bank avoids giving them a clear reason to dump exposure ahead of a faster easing cycle.

Oil above $90/bbl narrows the CBRT's room to ease

ING’s shift in tone is tied directly to energy and tariffs. The note says geopolitical tensions have pushed oil prices above $90/bbl, while Türkiye is gradually unwinding a sliding scale tariff mechanism. In ING’s reading, that reduces the room to absorb higher oil prices, even with measured regulated price hikes.

A sliding scale tariff mechanism is the kind of policy buffer that can soften the pass-through from global prices into domestic costs. If that buffer is being unwound, the CBRT has less cover to cut rates while imported energy costs are rising.

This is where oil moves from market noise to policy constraint. Our recent coverage of Oil Spike Rattles Markets as Middle East Tensions Rise and Red Sea Tanker Attacks Drag Saudi Oil Into Iran Fight gives the broader risk context, but ING’s point is narrower: higher oil and tariff changes make easing less comfortable for Türkiye’s central bank right now.

The source does not provide a fresh inflation print, current account figure, or fiscal estimate. So the grounded takeaway is tighter: ING is saying the energy backdrop limits the CBRT’s ability to absorb higher costs and argues for caution on liquidity.

The rate market is pricing some easing, but ING sees less movement today

ING says the rates market has made only a limited adjustment after the re-escalation of the US-Iran conflict. That is important because it suggests investors have not fully abandoned the easing path.

Here is the setup from the note:

The distinction between the policy rate and effective funding matters for the Turkish lira carry trade. A headline hold at 37.00% is one signal. Actual liquidity conditions are another. ING’s view is that the CBRT will keep funding tight rather than restart auctions immediately.

That makes the carry less vulnerable today than it would be under a softer liquidity signal. It also means the first real test may come later, when the bank decides whether to move from cautious language to actual cuts.

Reserve accumulation and TRY longs are doing the heavy lifting

ING’s most constructive language is on foreign exchange. The bank says the CBRT has been accumulating reserves in recent weeks and that long positions in the TRY market have essentially returned to previous highs.

That combination supports the lira narrative. Reserves matter because they shape confidence in the central bank’s ability to manage stress. Positioning matters because it shows investors are already willing to hold the trade despite thinner carry.

"The market clearly agrees with our view that despite the thinning carry, TRY remains an attractive currency, which is unlikely to change in the near future."

There is a warning inside that bullish sentence. The carry is “thinning.” If rates fall toward 35.00% by year-end, the income cushion shrinks. The trade can still work, but it becomes more sensitive to spot moves, oil shocks, and policy communication.

XOOMAR analysis: the lira trade is being held together by three things at once: high rates, cautious liquidity, and reserve accumulation. Remove one, and the position becomes harder to justify. Remove two, and the carry story changes quickly.

Foreign investors get the clearest benefit, while local effects remain harder to pin down

The clearest winner in the supplied material is the foreign investor already positioned long TRY. ING says long positions have returned near previous highs, and the market still sees the currency as attractive.

The CBRT also gains time. By delaying easing and stressing a meeting-by-meeting approach, it avoids locking itself into cuts while oil trades above $90/bbl and geopolitical risk remains active.

The source does not give enough evidence to make firm claims about Turkish households, banks, exporters, importers, or corporate borrowers. High rates usually create trade-offs across those groups, but this specific note does not quantify deposits, loan demand, balance-sheet stress, or sector exposure. Stretching that into hard conclusions would go beyond the record.

The supported point is narrower and more useful: investors are watching the CBRT’s liquidity stance, reserve accumulation, and guidance more than the headline rate alone.

The first serious rate cut is the lira trade's stress test

ING’s base case is not a permanent hold. It expects the CBRT to return to rate cuts in 4Q and take rates to 35.00% by the end of the year. That means the current setup is a delay, not a reversal.

For now, the Turkish lira carry trade still has three supports: 37.00% policy rates, cautious funding conditions, and recent reserve accumulation. The bullish scenario is that those supports last long enough for investors to keep adding or holding TRY exposure even as carry thins.

The bearish scenario is also clear. If oil remains above $90/bbl, geopolitical stress worsens, or the CBRT signals easier liquidity too soon, investors may decide the yield no longer compensates for the risk.

The evidence to watch is specific: whether the CBRT restarts one-week repo auctions, whether funding stays near the upper end of the corridor, whether reserves keep rising, and whether TRY long positions hold near previous highs. If those stay intact, the lira can remain attractive. If they break before cuts begin, the carry trade gets fragile fast.

Disclaimer: This XOOMAR analysis is for informational and educational purposes only. It is not financial, investment, legal, tax, or professional advice. It does not provide buy, sell, hold, price-target, portfolio, or personalized recommendations. Verify information independently and consult qualified professionals before making decisions.

The Bottom Line

• High Turkish rates continue to support the lira carry trade by rewarding investors for holding exposure.
• Oil above $90/bbl and geopolitical risks make near-term rate cuts harder for the CBRT to justify.
• ING still expects easing later this year, so investors are watching guidance for signs of how cautious the central bank remains.