Turkey Bond Yields Fall Fifth Day on Rate Cut Bets; Lira Weakens

Turkish yields fell for a fifth day to the weakest level in 20 months as a lower-than-expected expansion in gross domestic product reinforced bets the central bank may cut interest rates. The lira weakened.

Yields on two-year benchmark debt retreated two basis points, or 0.02 percentage point, to 7.33 percent at 5 p.m. in Istanbul, the lowest since January 2011. The lira depreciated 0.3 percent to 1.8016, declining for the first time in four days.

Turkey’s economy expanded by an annual 2.9 percent in the second quarter, the slowest pace since a recession in 2009, the statistics office said on its website today in Ankara. That compares with a median estimate of 3.1 percent in a Bloomberg survey of 12 economists. The bank said Aug. 29 it would lower the upper limit of its interest-rate corridor to help support economic growth. The country’s Monetary Policy Committee will convene on Sept. 18.

“We anticipate that the central bank will reduce the upper end of the interest-rate corridor by at least 50 basis points in order to support slowing economic activity,” Ali Cakiroglu, a strategist at HSBC Asset Management in Istanbul, said in an e- mailed note.

One-year interest rate swaps which traders use to speculate on changes in monetary policy fell 35 basis points to 7.30 percent today, the lowest since January 2011.

The central bank provided 1 billion liras ($555 million) at its lowest 5.75 percent policy rate today, twice the amount of funding provided a week earlier in its one-week repurchase agreements auction.

Governor Erdem Basci last reduced rates in February, lowering the top end of his interest-rate corridor to 11.5 percent from 12.5 percent while keeping the benchmark rate of 5.75 percent unchanged.hs

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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