Turkey's Central Bank Tightens Liquidity
Turkey's Central Bank (CBRT) has suspended its repo window, effectively hiking the overnight reference rate by 300 basis points. The move is seen as an implicit tightening to stabilize the Lira against geopolitical and oil price risks, with analysts now believing a rate cut on March 12 is completely off the table.
The Turkish Central Bank's move to suspend its one-week repo auction is a direct method of tightening liquidity and increasing the cost of funding for banks. This action forces banks to borrow at higher rates, such as the overnight lending rate, effectively raising the weighted average cost of funding without an official policy rate hike. The measure is aimed at curbing inflation and supporting the Turkish Lira by reining in credit expansion and consumption. This decision comes as Turkey faces a complex economic environment, with annual inflation rising to 31.5% in February. The increase was largely driven by significant price hikes in food, housing, and education. Concurrently, escalating geopolitical tensions in the Middle East have pushed up oil prices, posing a considerable risk to Turkey's inflation outlook and current account deficit as a major energy importer. The central bank's intervention included an estimated $7-8 billion in foreign exchange sales to stabilize the Lira. The currency had weakened to 43.9695 against the dollar amid the regional turmoil. Analysts note that a 10% increase in oil prices could add up to 1.5 percentage points to Turkey's inflation. For the Turkish startup ecosystem, this macroeconomic tightening creates a more challenging fundraising environment. Venture capital funding in the first quarter of 2025 had already seen a significant drop. In early 2026, funding has seen a 96.94% drop compared to the same period in 2025, with only $4.3M raised in 5 equity rounds. Higher interest rates tend to make investors, particularly individual angel investors, more risk-averse. Despite the funding slowdown, certain sectors in the Turkish tech scene have shown resilience. In 2025, fintech and gaming startups attracted the most capital, accounting for 68% of the total $589 million raised. Artificial intelligence startups saw the highest number of deals. However, the ecosystem faces a structural hurdle in scaling companies, with a significant drop-off in funding from seed to Series A stages and a lack of later-stage investment. Looking ahead, the focus for Turkish startups is shifting towards those that can generate revenue from international markets early on. Key sectors expected to attract investment in 2026 include AI & SaaS, defense industry technologies, deeptech, cybersecurity, and healthtech. While the global VC landscape saw a consolidation towards "mega-deals" in AI in 2025, Turkey experienced an increase in the number of early-stage deals, indicating a dynamic, albeit challenging, environment for new ventures.
