BofA's interest and inflation forecast for Türkiye

Bank of America (BofA) Türkiye Economist Zümrüt İmamoğlu evaluated the impact of market volatility on Turkey.

Speaking to CNBC-e television, İmamoğlu said that Turkey would be affected relatively less, adding, “The Central Bank is in control of the situation. They have accumulated reserves of nearly $90 billion. We should not expect major jumps in terms of exchange rates.”

İmamoğlu said about the interest rate cut, “Our main estimate is that it will start in December, if the data is good it may start in November.”

STATEMENTS FROM IMAMOĞLU

Highlights from İmamoğlu’s statements are as follows:

“We had a lot of unexpected shocks this summer. When the employment data was weak, there was such a reaction. Right now, there is an expectation that the Fed will cut interest rates. There is talk of an extraordinary meeting, but it depends on the data. The data does not yet indicate a serious recession. They would need a little more data for an emergency meeting. Basic messages are being given in Jackson Hole. There is no data to support excessive recession pricing. If the data supports that fear, the Fed could do it, but I don’t think that’s happening right now.

Turkey is currently less affected. Turkey has a very different story. All data shows that it is on the right track. There are not many positions in the Japanese yen compared to the TL. The Central Bank is in control of the situation. They have accumulated reserves of nearly $90 billion. We should not expect major jumps in terms of exchange rates. Turkey will be affected relatively less.

‘YEAR-END INFLATION FORECAST’

Inflation is still high in Turkey. Month-to-month slowdowns are due to seasonality. Services inflation is still sticky. Nothing unexpected happened in July. If we had seen inflation around 4 percent, the market could have reacted negatively. Our year-end estimate is 42 percent, we have not changed it since March. When we look at the trend in the summer, inflation could be around 2.5 percent in August. We will see a clearer decline in inflation in November and December.

WHEN WILL THE INTEREST RATE REDUCED START?

We are approaching a rate cut. Our main forecast is that it will start in December, if the data is good it could start in November. We expect a recession in the second half of the year but we do not expect it to turn into a hard landing. Our year-end growth expectation is 3.2 percent. Monetary policy alone is not enough to reduce inflation. Economic management is in coordination.

‘TURKISH BONDS WILL BE MORE ATTRACTIVE’

The biggest risk is the US elections. Will there be a policy change signal there? I think Turkey is the most resilient country to the US elections. Turkey will not suffer as much as other developing countries. Turkish bonds will be more attractive because we know that we are in a disinflationary period and a rate cut cycle next year.