Fund crisis in Borsa Istanbul and Central Bank interest rate decision expectations

While the impacts of selling pressure and the fund crisis continue in Borsa Istanbul, the markets' focus is on the upcoming Central Bank interest rate decision. While TEPAV advises keeping the interest rate constant due to the fund crisis, experts draw attention to economic instability and uncertainties.

Although Borsa Istanbul gained 3.22 percent yesterday, the effects of the fund crisis continue. The BIST 100 index remains below the 15,000-point level seen in May and is hovering at its lowest levels in 16 months in dollar terms. Markets are focused on the Central Bank's interest rate decision to be announced tomorrow. Expectations point to a 100 basis point cut in the policy rate to 36 percent, but experts emphasize the loss of confidence caused by the fund crisis.

The Economic Policy Research Foundation of Turkey (TEPAV) stated in its Monetary Policy Evaluation Note that had there been no fund crisis, the interest rate could have been cut by 200 basis points down to 35 percent. However, due to uncertainties created by the crisis, it was recommended to keep the interest rate unchanged at 37 percent. The note stated that although September inflation created room for cuts, the improvement in annual inflation could stall in November and December due to the base effect, making it difficult to reach the end-2027 target of 15 percent.

Assoc. Prof. Dr. Caner Özdurak stated that even though there is room for cuts on paper, the economy lacks sufficient stability. Defending that the interest rate should be left unchanged while vulnerabilities persist and the carry trade story continues, Özdurak noted that the cash crunches in industry cannot be resolved with an interest rate cut. Economist Emre Şirin expressed that a 200 basis point cut could provide some relief in the stock market, but uncertainty must be resolved first. Şirin argued that the erosion of demand by CPI and troubles in funds creates room for an interest rate cut.