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Turkish Yields Rise on Possibility of More Policy Tightening

Turkish yields rose to the highest level in almost three weeks after the central bank said it may deploy tightening measures more frequently to fight inflation.

The yield on two-year benchmark bonds increased 8 basis points, or 0.08 percentage point, to 9.50 percent at 5 p.m. in Istanbul, the strongest since March 29.

The Ankara-based bank may lend more frequently at the top end of its interest-rate corridor, it said after the Monetary Policy Committee meeting today. The lower and upper bounds of the policy range were left unchanged at 5.75 percent and 11.5 percent, matching all 11 forecasts in a Bloomberg survey.

“The bank is getting more hawkish in every meeting,” Ozgur Altug, chief economist at BGC Partners in Istanbul, said in an e-mailed note. “The central bank will be keen on maintaining its relatively tight monetary policy at least until the third quarter,” Altug said, citing Turkey’s “very large” current-account deficit.

The lira weakened for the first time in three days and traded 0.1 percent lower at 1.7913 per dollar after the bank resumed lending at 5.75 percent in its daily one-week repo auctions. It has withheld lending at the minimum funding rate for the past five days, resulting in the lira appreciating 1.1 percent.

The bank provided 4 billion liras ($2.2 billion) in one-week repurchase agreements in today’s auction against bids for 19.9 billion liras.

Turkey’s central bank varies its funding rate on a daily basis, maintaining borrowing costs within the interest-rate corridor introduced last year. The most recent round of policy tightening began on April 11 after the lira weakened to a three-week low at 1.8177 per dollar during intraday trade.

The current-account deficit in Turkey is about 10 percent of gross domestic product, the biggest among 60 major economies tracked by the International Monetary Fund as a proportion of GDP. The country’s inflation rate is 10.4 percent, which is more than twice the bank’s 5 percent target for this year.

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