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.
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