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Bank of America (BofA) Securities warned that September's fund scandal is taking a growing toll on market confidence and economic activity, while the Turkish lira remains relatively stable ahead of expected monetary easing.
After a market rout triggered by redemption request failures in several investment funds, authorities brought 131 funds under liquidation over six months and launched a legal investigation into capital market irregularities.
At the time, over 455,000 investors were caught up in these funds, which were estimated to hold a combined asset base of ₺936.3 billion ($19.1 billion).
In a note on Monday, the bank's economists noted that the crisis had been contained from a systemic risk perspective, but its broader economic consequences were becoming increasingly visible.
Uncertainty surrounding the resolution of troubled investment funds and the recovery of investor assets continued to undermine confidence, according to BofA.
The report described overall market sentiment as "significantly weaker" than during the bank's discussions a month earlier, highlighting the deterioration in investor sentiment since the crisis unfolded.
The economists also warned that the scandal was adding to an existing slowdown in domestic demand, as tighter financial conditions continued to weigh on credit growth.
Although weaker confidence and supplier connections could spread the fallout across a wider range of businesses, BofA assessed that companies' direct exposure to the fund crisis remained under control.
Despite concerns over market confidence, BofA did not anticipate a faster pace of Turkish lira depreciation unless the economy faced another major external shock.
October marked the fastest pace of lira depreciation since July, when the currency weakened by 2% against the dollar, although the 1.8% decline in October remained below the month's 2.6% inflation rate.
The bank expected the Central Bank of the Republic of Türkiye (TCMB) to pursue a cautious easing path, balancing disinflation efforts against reserve pressures and the need to curb dollarization among individual investors. Selective easing of macroprudential measures could also become possible over time.
BofA projected a 100-basis-point rate cut in December, which would bring the policy rate to 35% following an identical reduction in October. Looking further ahead, it forecast the rate at 31% and inflation at 25% by the end of 2027.
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