Turkish yields fell to the lowest level in more than two months and the lira declined after the central bank kept the benchmark rate at a record low of 6.25 percent for the sixth month.
Yields on two-year bonds dropped 15 basis points to 8.60 percent at 5 p.m. in Istanbul, the least since May 10. The lira fell 0.5 percent to 1.6709 per dollar.
The central bank’s “language was surely even more dovish than before,” Yarkin Cebeci, an economist at JPMorgan Chase & Co. in Istanbul, said in an e-mailed report after today’s decision was published. “The announcement supports our view that Turkish authorities are getting more and more worried about the likely effect of the European debt problem.”
The central bank is trying to engineer a slowdown from the 11 percent annual economic growth that Turkey recorded in the first quarter and said today that it’s sticking by its policy of low rates and curbs on bank credit, “given the growing uncertainty for the global economy.” A further loosening is possible if “problems in developed economies deepen and domestic activity halts,” according to the statement.
The central bank, however, may move to stem a recent decline in the lira at its next rates meeting in August as the currency fell to two-year lows against the dollar and a record low against the euro, Cebeci said.
“The central bank is getting uncomfortable with the lira’s recent underperformance and could hike its overnight borrowing rate to prevent capital outflows,” he said. “We will not be surprised if the overnight borrowing rate is raised in the next meeting.”