Turkey Yields Fall Most in Week as Bank Says Inflation to Slow

Turkey bond yields dropped the most in more than a week after the central bank reiterated it expects inflation to slow in the fourth quarter.

Yields on benchmark two-year debt fell 12 basis points, or 0.12 percentage point, to 7.63 percent at the close in Istanbul, the most since Aug. 27, after rising 13 basis points yesterday. The lira strengthened less than 0.1 percent to 1.8173 per dollar after dropping 1.3 percent last month.

Yields yesterday rose the most in almost a month after the inflation rate declined less than expected to 8.9 percent in August from 9.1 percent in July as food and transport prices rose. The median estimate of five economists surveyed by Bloomberg was 8.3 percent. The fall in inflation rate is expected to gather pace in the fourth quarter, the bank said in an e-mailed statement today.

“The central bank’s priority is inflation even though it says growth will slow,” Bugra Bilgi, a hedge fund manager at Garanti Asset Management in Istanbul, said in e-mailed comments today.

The bank’s core measure of price growth which excludes food and non-alcoholic beverages declined to 7.2 percent in August from 7.5 percent a month earlier.

“Inflation is falling and sub-indices are performing well and the central bank can cut rates,” Bilgi said.

The bank provided 2 billion liras ($1.09 billion) at its lowest 5.75 percent funding rate in the one-week repurchase agreements auction today, the same amount of funding last week. The overnight cost of borrowing in the interbank market fell for a second day to 5.11 percent.

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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