Istanbul Stock Exchange Faces Pressure Amid Rate Hike

The sudden interest rate hike and heightened political tensions in March have led to a significant downturn in Borsa Istanbul, with the BIST 100 index dropping from 11,000 to the 9,000-point range. The Central Bank’s policy rate was raised from 42% to 49%, causing funding costs to spike and leading to persistent sell-side pressure across the market.

Despite hopes for strong Q1 earnings, balance sheets showed no meaningful improvement compared to the previous quarter. Sluggish domestic demand and high financing costs weighed on corporate performance, particularly in the industrial sector. Although banks reported relatively strong earnings in Q1, they may face challenges in Q2 due to higher interest and FX costs. Export-oriented firms failed to fully capitalize on currency gains, as those advantages were offset by rising financing expenses.

Foreign Capital Waits Amid Rising Political Risk

While Türkiye’s tight monetary policy stance remains intact, increasing political uncertainty has discouraged long-term foreign investors. Instead, short-term, speculative capital flows—typically trader-driven—have become more dominant, reducing overall market stability.

Bank stocks regained some appeal after Q1 earnings exceeded expectations, though the sustainability of this trend is in question. Holdings, aviation, retail, and food stocks are being closely monitored due to their undervalued prices. In the real estate sector, strong sales figures from companies like Emlak Konut have created positive divergence.

The BIST 100 is currently consolidating between 9,000–10,000 points. If the index falls below this range, 8,600 could emerge as the next target. On the upside, 9,900 remains a key resistance level to reignite optimism.

Macro Outlook: Inflation, Rate Cuts, and Market Recovery Scenarios

Despite soaring interest rates, money market funds now offer compound returns close to 60%, making TL deposits more attractive. However, these rates are also increasing borrowing costs for businesses, particularly in manufacturing. Analysts expect a notable economic slowdown starting in Q2.

The Central Bank’s next inflation report is due in June. Achieving the year-end inflation target of 36% appears unlikely without a significant slowdown in monthly inflation (currently averaging 1.4%). Market analysts forecast a more realistic rate near 48%, yet the Bank remains committed to tight monetary policy.

Consumer inflation expectations remain relatively anchored, which is interpreted as a positive sign for credibility. However, persistent inflation above 30%—especially in essential spending categories like food, healthcare, and education—makes it difficult to alter household consumption behavior in the short term.

H2 Outlook: Hope Hinges on Stabilization and Foreign Inflows

Interest rate cuts are unlikely before July, but expectations for a recovery in aviation and banking stocks are growing for the second half of the year. That recovery, however, will depend on easing political risks and stabilization in macroeconomic indicators.

End-of-year BIST 100 forecasts have been revised to the 12,500–13,500 range. Reaching this level will require:

• A return of foreign capital,

• Clear signs of rate cuts,

• And relative calm in the political and economic landscape by summer.