Turkish Bonds and Lira Drop as Goldman Says Economy Vulnerable

Turkey’s benchmark yields climbed for the first time in five days and the lira depreciated against the dollar as Goldman Sachs Group Inc. said pressure on the economy may continue given the nation’s external imbalances.

Yields on two-year benchmark notes rose 16 basis points, or 0.16 percentage point, to 8.83 percent at the close and the Borsa Istanbul National 100 (XU100) index fell 0.7 percent. The lira weakened 0.3 percent to 1.9317 per dollar, the lowest since Aug. 1, at 12:42 p.m. in Istanbul. Turkish Markets closed at 12:40 p.m. local time and will reopen Aug. 12 as the nation celebrates Eid, which marks the end of the Islamic month of fasting.

“The Turkish economy may have to go through a significant adjustment as the U.S. economy continues to normalize over the next couple of years,” Ahmet Akarli, a London-based economist at Goldman Sachs, said in a report dated yesterday. The adjustment may come “through a combination of a weaker exchange rate, as well as higher domestic rates,” he said, citing the economy’s shortfall, a source of “vulnerability.”

The current account deficit widened an annual 42 percent to $7.52 billion in May, according to central bank data published last month. The gap may reach 6.9 percent of gross domestic product in 2013, up from 6.04 percent last year, according to the median estimate of 21 economists in a Bloomberg survey.

‘Re-appreciation’

Two-year yields have surged 404 basis points, or 4.04 percentage points, from a record low of 4.79 percent on May 17. The lira has weakened 7.7 percent against the dollar this year, the biggest decline after South Africa’s rand among emerging markets in Europe, the Middle East and Africa.

“We may see a partial re-appreciation in the lira, with perceptions of inflation turning positive this month,” Inanc Sozer, an economic-research manager at Odea Bank AS, the Turkish unit of Lebanon’s Banque Audi SAL-Audi Saradar Group, said in e-mailed comments today. “If food prices remain subdued, inflation in August might even drop to 7.5 percent,” he said.

Annual inflation in July rose to 8.88 percent, the highest level since September, from 8.3 percent the previous month, according to data released by the statistics office this week.

Core inflation, which strips out energy, food, beverages, tobacco and gold, accelerated to 6.09 percent from 5.57 percent in June, the largest monthly pickup since October 2011. Publication of this month’s inflation data is scheduled for Sept. 3.

To contact the reporter on this story: Taylan Bilgic in Istanbul at tbilgic2@bloomberg.net

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

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