Bank of America (BofA) Securities, in an assessment published regarding the fund crisis in Turkey, reported that systemic risk to the financial system remains limited; however, the effects of the crisis on economic activity and market confidence have become more pronounced.
In a report dated November 9 by economists led by Hande Küçük, it was emphasized that uncertainties regarding the resolution and recovery processes related to the funds have weakened investor sentiment. According to the report, general market sentiment displays a "significantly weaker" outlook compared to discussions held a month ago.
EMPHASIS ON CREDIT GROWTH AND DOMESTIC DEMAND
The report stated that tight financial conditions are suppressing credit growth and that this situation continues to drive the slowdown in domestic demand. According to BofA economists, the loss of confidence caused by the fund crisis is among the factors reinforcing this trend.
While it was assessed that the direct risks to companies stemming from the crisis remain under control for now, a warning was issued that negative effects might not be limited solely to the balance sheet channel. The report highlighted risks that could spread to a wider economic area through supplier relationships and the loss of confidence.
BofA Securities also noted that it does not expect an additional increase in the rate of depreciation of the Turkish lira unless a significant external shock occurs. The report stated that the Central Bank of the Republic of Turkey (TCMB) will take into account pressures on reserves and the tendency of individual investors to turn to foreign currency while continuing its fight against inflation.
In this context, BofA reported that the TCMB is expected to act cautiously regarding interest rate cuts. The assessment indicated that although the fund crisis is being kept under control in the financial system, it remains a topic that must be monitored in terms of economic confidence and demand conditions.
News Source: 12punto
