As widely anticipated, Turkey’s central bank, which is battling double-digit inflation and a fluctuating Turkish lira (TRY), on October 26 opted to keep its one-week repo (8%), overnight lending (9.25%) and borrowing (7.25%) rates on hold. The market was also not surprised by the national lender's decision to keep the late liquidity window-lending rate (12.25%) unchanged, as outlined in a press release put out after the Monetary Policy Committee (MPC) meeting.

The TRY has lately suffered more substantial volatility in response to the diplomatic spat with the US over an arrested Ankara embassy staff member and ongoing rows with Germany over human rights and other basic freedoms Berlin feels are under threat in Turkey, ruled under a state of emergency since the attempted coup of July last year. The Turkish central bank has, meanwhile, been steady in providing real interest returns, helping to make Turkey one of the most beloved of emerging markets. 

On October 25, Bloomberg reported that Germany is now actively working to cut financing extended to Turkey from the country’s state-owned KfW bank, European Investment Bank (EIB) and European Bank for Reconstruction and Development (EBRD). Coincidentally, in the meantime, German citizen Peter Steudtner was being put on trial at an Istanbul court.

The lira hit as low as 3.8080 to the dollar after during the evening hours local time after the story broke.

Subsequently, a Turkish court conducting a terror trial ordered the release on bail of eight defendants including Steudtner and the director of Turkey's branch of Amnesty International.

“This is an encouraging signal, a first step,” German Foreign Minister Sigmund Gabriel said in a statement, and he added that Germany would keep seeking the release of other citizens in Turkish custody, Bloomberg reported. There are still 11 more German prisoners in Turkey, according to Gabriel.

On the morning of October 26, the EBRD told Turkey’s state-owned news agency Anadolu that it remained committed to its investments in Turkey.

The Turkish lira was trading at 3.7760 against the dollar as of 17:15 local time on October 26, up 0.22% d/d.