Turkey Tightens by Halting Benchmark Funding; Yields Climb

Turkey’s central bank tightened monetary policy by withdrawing funding at its benchmark rate for the first time in more than two months. Bond yields rose to the highest level since January.

The central bank in Ankara didn’t offer to lend money to the country’s banks over a week at the 5.75 percent annual rate in a daily auction at the scheduled time of 10 a.m.

Governor Erdem Basci said yesterday the bank will maintain a policy of “controlled tightening” using its so-called interest rate corridor between 5.75 percent and 11.5 percent. The central bank began lending at higher rates in October to stem loan growth and help arrest a decline in the lira.

“This is now a familiar central bank approach,” Arko Sen, head of debt and currency strategy for the region at Bank of America Corp. in London, said in e-mailed comments. “It will help the lira recover some ground today. Bonds will weaken however, as concerns will rise that interest rates could increase again as they did at the beginning of the year.”

Yields (BENCH) on two-year bonds closed at the highest level since Jan. 25, rising 13 basis points to 9.67 percent at 5 p.m. in Istanbul. The lira rose less than 0.1 percent to 1.8128 per dollar, reversing earlier losses.

The bank last halted lending at the benchmark interest rate between Dec. 29 and Jan. 9, instead lending at an upper rate of as much as 12.5 percent. It reversed course on Feb. 21, easing policy by reducing the upper limit of its rates corridor by 100 basis points to 11.5 percent, citing similar easing at other central banks in Europe and the U.S.

The central bank will take care not to damage the country’s banks as it seeks to restrain lending growth and slow inflation, Basci said yesterday.

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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