Turkish Lira Weakens Second Day After Industrial Output Shrinks

Aug. 8 (Bloomberg) -- The lira weakened for a second day after a contraction in industrial production boosted speculation the central bank will ease monetary policy to stimulate Turkey’s economy which shrank in the first quarter.

The currency fell less than 0.1 percent to 1.7873 per dollar at 5:03 p.m. in Istanbul, the lowest on a closing basis since Aug. 2. It has strengthened 5.8 percent this year, second-most after the Hungarian forint, among 10 currencies Bloomberg tracks in eastern Europe, the Middle East and Africa. Yields on two-year benchmark bonds rose for a third day, advancing three basis points, or 0.03 percentage point, to 7.73 percent, the highest since July 30.

Turkey’s industrial production contracted 2 percent in June over the previous month on a seasonally-adjusted basis, the first time since January, the statistics office in Ankara said on its website today. Annual output grew 2.7 percent from a year earlier, lagging the 2.8 percent median estimate of six economists surveyed by Bloomberg. Adjusted gross domestic product fell 0.4 percent in the first quarter, the first time since March 2009.

“The data supports expectations of monetary easing from the central bank in the coming period,” Tunca Alp, head of trading at Sekerbank AS in Istanbul, said in e-mailed comments.

Turkey’s central bank has reduced the average borrowing cost to 6.84 percent, the lowest since November 2011, by lending at its lowest 5.75 percent funding rate in its daily repurchase agreements auction since June 4. The inflation rate fell 0.23 percent in July, the statistics office said Aug. 3, beating the 0.18 percent median forecast of six economists surveyed by Bloomberg and paving way for the central bank to ease policy.

Rate Cut

“We believe that the central bank will cut interest rates because it will favor economic acceleration,” Bora Tamer Yilmaz, a vice president at Halk Securities in Istanbul, said in e-mailed comments.

Currency forwards show the Turkish currency will weaken to 1.83 per dollar in the fourth quarter, according to data compiled by Bloomberg.

Benchmark debt yields jumped 18 basis points yesterday, the most since Feb. 27 as Turkey is scheduled to sell 16 billion liras of fixed-income securities in August, more than double the total for the previous two months.

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