Turkish Yields Drop 2nd Day as Central Bank Doubles Repo Funding

Turkish benchmark bond yields dropped for a second day as the central bank raised the amount of its funding to lenders a day after Governor Erdem Basci said he may cut interest rates.

The central bank doubled the amount of money it provides at the one-week repo rate of 5.5 percent to 2 billion liras ($1.1 billion) today. A “measured rate cut” may be in store if the value of the lira exceeds the central bank’s limit as measured by the so-called real effective exchange rate index, or REER, Basci said at a conference in the southern Turkish city of Mardin yesterday.

The increase in funding “will ease the repo liquidity,” Onder Turker, a fixed-income trader at Finansbank AS in Istanbul, said in e-mailed comments. “There is a lot of interest in bonds with less than two-year maturity.”

The central bank will announce the index level for March today. A reading between 120 and 130 on the REER index could prompt a “moderate” response, Basci said.

Yields on two-year domestic bonds fell five basis points, or 0.05 percentage point, to 6.22 percent at 1:03 p.m. in Istanbul, after declining 16 basis points yesterday, the most in almost five months. The lira weakened less than 0.1 percent to 1.8089 per dollar.

“Obviously a rate cut will follow this speech,” Sercan Kiliclar, a fixed-income trader at Akbank TAS (AKBNK) in Istanbul, said in e-mailed comments, referring to Basci’s remarks yesterday. The central bank “may lower the upper-end of the rates corridor” at the Monetary Policy Committee’s meeting on April 16 and then reduce the lower band in the next meetings, he said.

Basci introduced a variable-rates policy, employing a so- called corridor of two rates in addition to the benchmark rate, in October 2011 to help control the lira by managing capital inflows and containing loan growth.

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

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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