Turkey Yields Drop 4th Day on ‘Extra Tightening’ Policy Change

Turkish bond yields declined for a fourth day to the lowest since September after the central bank omitted a reference to “extra tightening” in a statement it released after leaving interest rates unchanged at a policy meeting.

Yields on two-year benchmark debt fell four basis points, or 0.04 percentage point, to 7.79 percent, the least since Sept. 9, extending this month’s decline to 68 basis points. The lira weakened less than 0.1 percent to 1.8033 per dollar, the first time in five days.

The bank held its benchmark one-week repo rate at 5.75 percent, in line with forecasts of all eight economists surveyed by Bloomberg. It kept the overnight rate at 11.5 percent, while increasing the proportion of lira reserves lenders keep with the central bank in foreign exchange to 55 percent from 50 percent. The change, effective from Aug. 3, may add $2.9 billion to reserves and bring an additional 2.8 billion liras ($1.6 billion) to the market, a statement on the bank’s website said today.

“The monetary policy committee has dropped” the reference to “additional tightening compared to the previous release in June, which is positive for the market,” Ibrahim Aksoy, an economist at Seker Securities in Istanbul said in an e-mailed note.

The bank added a phrase saying it would preserve flexibility in monetary policy given uncertainty in the global economy, supporting speculation of a rate cut later this year.

“We expect the Turkish central bank to ‘officially’ cut the upper level of the interest rate corridor by 100 basis points from 11.5 percent in the second half,” Aurelija Augulyte, an analyst at Nordea Markets in Copenhagen, said in an e-mailed note.

The central bank varies its funding rate daily, maintaining borrowing costs within a 5.75 percent to 11.5 percent interest- rate corridor introduced last year to control inflation and reign in the current-account deficit.

To contact the reporters 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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