BofA sees single Central Bank rate cut in October

ISTANBUL

Bank of America (BofA) expects the Central Bank of Türkiye to deliver its first and only policy rate cut of 2026 in October, lowering the benchmark rate by 100 basis points to 36 percent after annual inflation falls to around 30 percent to 30.5 percent in September due to favorable base effects.

The bank said its outlook remains conditional on geopolitical developments, the global macroeconomic environment and energy prices. It forecasts the policy rate to end 2026 at 36 percent and 2027 at 32 percent, while year-end inflation is projected at 29.5 percent and 26 percent, respectively. The Medium-Term Program, due on Sept. 7, will be a key indicator for the 2027 policy outlook, BofA said.

In a research note, BofA said the Central Bank’s decision to resume one-week repo auctions has effectively lowered funding costs by 300 basis points to 37 percent.

The bank said weaker domestic demand, slower credit growth and a recovery in foreign exchange reserves have created room for monetary normalization. However, it argued that elevated inflation expectations, geopolitical uncertainty and energy price risks leave limited scope for aggressive easing.

BofA also noted that macroprudential measures are likely to keep financial conditions tight, limiting the pass-through from lower funding costs to lending and deposit rates. It expects credit growth controls to remain in place and does not anticipate a meaningful increase in dollarization or a faster pace of lira depreciation in the near term.

The bank forecasts Türkiye’s economy to grow 2.8 percent this year.