Lira Rebounds From Weakest in Three Weeks as Trade Gap Contracts

The lira rebounded from its weakest in almost three weeks and bonds rose after Turkey’s trade deficit fell from a year ago and European leaders agreed on measures to support Spain’s banks, boosting demand for riskier assets.

The Turkish currency gained for the first time in three days, up 1.1 percent to 1.8078 per dollar at 6:07 p.m. in Istanbul, paring its quarterly fall to 1.4 percent. It closed at 1.8275 per dollar yesterday, the lowest since June 11. Yields on two-year benchmark bonds slipped for a fourth day, down 14 basis points to 8.47 percent, the lowest level since Oct. 14, extending the slide in the three months to 84 basis points.

The trade gap fell 16 percent to $8.6 billion in May from $10.2 billion a year earlier, the statistics office in Ankara said on its website today, lagging the $6.6 billion shortfall in April. It accounts for a major proportion of the current-account deficit, which shrank for a sixth month in April, helping the lira appreciate 4 percent this year.

“The gradual fall in the 12-month foreign trade deficit continues although we saw a deficit higher than our expectations for the month,” Basak Karaaslan, an economist at Finansbank AS, said in e-mailed comments. “We expect the slowdown in domestic demand and the retreating global energy prices to limit the fall import bill and continuation of the 12-month deficit.”

Crude, Commodities Drop

Crude oil prices have plunged 23 percent this quarter, heading for the biggest drop since the final three months of 2008. Turkey imports almost all of the oil it consumes. The Standard & Poor’s GSCI Spot Index of 24 raw materials has dropped 16 percent from this year’s highest close of 715.52 on Feb. 24.

Turkey is “decelerating toward a soft landing,” the International Monetary Fund said in a statement June 8. The economy grew 8.5 percent in 2011, the third-fastest pace in the world behind China and Argentina, and 9.2 percent in 2010, according to the state statistics agency.

European leaders grew closer to solving the debt crisis, dropping requirements that governments received preferred creditor status on crisis loans to Spain’s banks and relaxing conditions on potential help for Italy.

The central bank lent 5 billion liras ($2.8 billion) today at 5.75 percent in its one-week repurchase agreements auction and 4 billion liras in one-month repo auction at 9.94 percent.

The bank varies its funding rate daily, maintaining borrowing costs within a 5.75 percent to 11.5 percent interest-rate corridor introduced last year. It has lent at the lowest policy rate for 19 consecutive days, lowering borrowing costs for lenders.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE