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Lira Gains Second Day as Slower Growth Forecasts Lower Deficit

The lira strengthened for a second day and bond yields fell as the slowest pace of Turkish growth since 2009 fueled bets the current-account deficit will decline for the seventh consecutive month in June.

The lira appreciated less than 0.1 percent to 1.863 per dollar at 7:23 p.m. in Istanbul, extending its gain this year to 4.5 percent. Yields on two-year benchmark debt retreated for a fifth day, down three basis points, or 0.03 percentage point, to 8.44 percent, the lowest level since October.

Turkey’s economy expanded 3.2 percent on an annual basis in the first quarter, the slowest pace since 2009. Central bank governor Erdem Basci raised the average daily cost of borrowing for lenders to 9.7 percent in May from an average of 8.1 percent in the past one year, curbing credit growth. Trade deficit narrowed for a seventh consecutive month in May from a year ago and the current-account gap fell for a sixth straight month to $5 billion in April.

“Measures taken by the authorities to slow economic activity reduced imports and current account deficit,” Hakan Aklar, chief economist at Ak Investment in Istanbul, said in an e-mailed note today.

Turkey’s capacity utilization slid to 74.6 percent in June from 76.7 percent a year earlier, according to a central bank report June 25, pointing to increasing output gap in the economy.

Basci introduced an interest-rate corridor in October, switching between rates of 5.75 percent and 11.5 percent on a daily basis to tame inflation and rein in the current-account deficit.

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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