Credit Squeeze and Oil Threat: Is CBT’s Rate Cut Path Heading to a Dead End?

The pressure of tight monetary policy and macroprudential measures on Turkey's real sector is deepening. The slowdown felt in locomotive sectors such as automotive, housing, and retail stems not only from high interest rates but also from credit constraints within the banking system.

The Funding Wall: A Threat Far Greater Than Interest Rates

Analysis by Coface Economist Seltem İyigün reveals the scale of the liquidity bottleneck faced by corporates. Rather than the high-interest environment itself, physical barriers to accessing credit have paralyzed companies' cash flow management.

■Postponement of investment decisions and lack of working capital are directly undermining production.

■Capacity utilization rates in the industry remain below long-term averages across all major sectors.

■On the household side, real wage erosion and individual credit limits are rapidly dragging down domestic demand.

Oil and Geopolitical Risks: Will CBT's Rate Cut Plans Be Delayed?

While the contraction in domestic demand eases the CBT's hand in fighting inflation, uncertainties in global commodity markets are narrowing the room for monetary policy maneuvers.

■Middle East-centered geopolitical tensions keep oil prices in the $85-$90 band.

■Oil remaining above the CBT's projection of $87 keeps cost-push inflation pressures alive.

■Contrary to expectations, if geopolitical risks spill over into 2027, technical normalization and expected interest rate cuts could be delayed.

Successful Liquidity Management but Sticky Inflation Expectations

While the Central Bank's success in sterilizing foreign-sourced TL inflows strengthens reserves, rigidity on the inflation front persists. Coface raised its year-end inflation forecast to 31.5%, projecting that the targeted 15% level for next year is highly unlikely to be met under current structural challenges.

The contraction in commercial loans and macroprudential restrictions have severely disrupted the working capital cycle of SMEs. While the banking sector is forced to tighten credit taps to preserve asset quality, the real danger is that this financial squeeze will lead to permanent employment and production losses in the real sector. Although the CBT's liquidity sterilization steps are essential for macro-financial stability, the sharp deceleration in credit growth is testing the carrying capacity of the real economy.