I think there are some misconceptions about how the @CentralBank_TR's rate hike last week will feed into the local market. Most of total funding outstanding by CBRT is term repo operations conducted between mid-Aug through last week (TRY 175bn vs 240bn total net funding) [1/n]

Those term repos will mature over the next month, at a pace of about TRY 50bn/week. The avg cost of funds on those term repos stands at about 11%, and this heavily influences the headline WACF figure reported in the daily funding report. [2/n]

What matters is the mix of new funds provided to the market as those term repos wind down. So far, early indications are that the CBRT is leaning towards the overnight facility at 11.75% versus 1w repo at 10.25% (only TRY 5bn offered in 1w on Friday and zero today). [3/n]

If the CBRT keeps this up, the WACF could rise gradually to 11.75% (versus 10.99% today), meaning a further increase in rates of 75bp over a month. They could increase this further if they opt to reopen the late-liquidity window. [4/n]

The amount of funding also matters; net funding has stabilized at around TRY 250bn over the past couple of weeks, down from a high of TRY 340bn in early Sept, but up from TRY 150bn in mid-July when the WACF was at its low. [5/n]

Banks have been highly dependent on the CBRT for lira funding to support new credit growth for past two months because TRY depo growth has been minimal. We've only seen a true tightening of liquidity in the past three weeks with total funding amounts actually declining. [6/n]

If the CBRT keeps liquidity at these levels and lira depo growth does not rebound, expect the banks to pare ROM utilization further and increase their FX swaps to generate lira funds. Of course credit growth will have to slow further in this scenario. [7/n]

Overall, we've seen a very gradual acceptance of orthodox monetary policy by the CBRT since July, although the verdict is not in whether they have fully accepted a true return to orthodoxy. [8/8]