Turkish Yields Rise 3rd Day on Inflation Concern, Interest Rates

Dec. 13 (Bloomberg) -- Turkish yields increased for a third day and headed for their highest level in two weeks on concern that inflation may accelerate in early 2012 and banks’ cost of short-term funding may remain elevated.

Yields on the two-year benchmark bonds rose 11 basis points, or 0.11 percentage points, to 10.51 percent, a Royal Bank of Scotland index of the local securities showed. This is the highest level since Nov. 29 on a closing basis.

The central bank is now focused on inflation, Governor Erdem Basci said in televised comments to reporters in London yesterday after a meeting with economists. It acted early to tackle an increase in the inflation rate, he said. Price acceleration increased to 9.5 percent in November from 7.7 percent a month earlier, the statistics office in Ankara said Dec. 5.

Inflation has not peaked yet, Ozgur Altug, chief economist at BGC Partners in Istanbul, said in an e-mail. “We foresee that annual CPI inflation will reach double-digit and it’ll stay there for at least four months.”

The central bank decided to increase the rate at which commercial lenders borrow to as high as 12.5 percent in October instead of raising the one-week repurchase rate, which is at a record low of 5.75 percent.

The benchmark bond yield could test 12 percent in the next couple of months. Altug said. “Banks are not willing to purchase government securities” because the central bank almost doubled their funding cost, Altug said.

Economic Growth

Yields on Turkish government two-year notes climbed to 10.94 percent on Oct. 25 from 8.4 percent at the end of September. Turkey’s economy grew at a faster-than-expected 8.2 percent in the third quarter from a year earlier, the statistics institute announced yesterday.

“Growth data was very strong, and the central bank is setting its tone more hawkish, putting emphasis on inflation and this played a role in the yields’ increase,” Bulent Topbas, a fund manager at Strateji Menkul Degerler in Istanbul, said in an e-mail.

The lira was little changed at 1.8697 per dollar at 12:36 p.m. in Istanbul, after it depreciated 1.5 percent yesterday, the biggest one-day slump since Nov. 21, on concern that Europe’s debt crisis will damp growth in a region which buys almost half of Turkey’s exports.

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