New inflation and dollar forecast from Bank of America! How much will it be at the end of the year?

Bank of America (BofA), one of the world's largest banks, published a report yesterday containing its new forecasts regarding Turkey. The report included expectations for the Central Bank of the Republic of Turkey's (CBRT) interest rate cut cycle, as well as inflation and the dollar/TL exchange rate.

The US bank noted that it expects the CBRT to continue the interest rate cut cycle it began in December with a 250 basis point cut in January, and that it anticipates 7 interest rate cuts in 2025.

EXPECTATION FOR INTEREST RATE CUT CHANGED

The report, which mentioned that the Central Bank reduced the number of meetings from 12 to 8 and will not hold a meeting in February, noted that an interest rate cut is now expected in January instead of the previously anticipated pause.

The report stated, "According to the new meeting calendar, the CBRT will meet only 8 times a year instead of 12. Considering that there will be no meeting in February, we expect another 250 basis point cut in January instead of the pause we previously projected."

BofA stated that it projects the policy rate will fall to 30 percent by the end of the year with 7 cuts of 250 basis points throughout the year.

The bank also stated that if an upward movement is observed in inflation, interest rate cuts could be paused. The report said, "In the event that inflation data provides an upward surprise, the CBRT may reduce its steps or pause cuts at any point."

INFLATION FORECASTS

Stating that it sees limited upside risk to the Central Bank's 25 percent inflation target for the end of 2025 because the minimum wage increase occurred at the lower bound of expectations, the bank said, "We believe that the CBRT can use its macroprudential tools if it sees any risk."

The bank, which expects 9-10 percent of the projected 25 percent inflation to occur in the first quarter, said that annual inflation will continue to fall, leaving ample room for interest rate cuts.

DOLLAR/TL FORECAST LOWERED

The bank, which expects the TL to gain value in real terms, emphasized that this gain could be limited as inflation falls.

The report stated, "We continue to expect the TL to gain value in real terms, but as inflation falls, the room for this appreciation narrows. Despite the projected cuts, we believe that TL savings will remain attractive throughout the year as long as positive real interest rates are maintained."

Projecting that positive real interest rates will continue throughout the year, the bank revised its dollar/TL expectation downward from the previously projected 44 level to 41.