BofA: Fund crisis continues to impact confidence and economic activity

BofA Securities economists stated that the fund crisis is under control regarding systemic risk, but its effect on confidence and economic activity continues. The bank projects that the CBRT will make a 100 basis point interest rate cut in December.

In their report dated November 9, BofA Securities economists stated that although the fund crisis has been brought under control in terms of systemic risk, its impact on confidence and economic activity is becoming increasingly visible. Led by Hande Küçük, the team emphasized that uncertainties in resolution processes related to funds contribute to the overall deterioration in confidence, and market sentiment is markedly weaker compared to discussions a month ago. It was noted that the ongoing slowdown in domestic demand, driven by weakening credit growth under tight financial conditions, has been reinforced by the fund crisis.

While direct exposures stemming from the fund crisis for corporations were assessed as remaining under control, it was stated that supplier connections and weakening confidence could expand the impact area. It was noted that, barring a significant external shock, no further increase in the rate of depreciation of the Turkish lira is expected. It was conveyed that the Central Bank of the Republic of Turkey (CBRT) is expected to cut interest rates cautiously while balancing disinflation with reserve pressures and the need to curb individual dollarization.

Bank economists forecast a 100 basis point cut by the CBRT at its December rate meeting. Additionally, the report included estimates that the benchmark interest rate will realize at 31 percent by the end of 2027, and inflation will decline to 25 percent.