Turkey bond yields rose the most in more than two weeks on speculation the U.S. may refrain from providing more stimulus, limiting room for central bank Governor Erdem Basci to cut rates. The lira weakened for a second day.
Yields on two-year benchmark debt jumped 11 basis points, or 0.11 percentage point, to 7.81 percent at the close in Istanbul, the biggest gain since Aug. 7. The Turkish currency depreciated 0.3 percent to 1.7988 per dollar, retreating the most in a week.
Federal Reserve Bank of St. Louis President James Bullard said late yesterday recent signs of improvement in the economy would prompt him to oppose any new program to buy bonds to reduce borrowing costs. Turkish yields dropped 11 basis points yesterday after minutes of the Fed’s most recent meeting showed U.S. policy makers favored more stimulus measures unless the economy shows signs of “sustainable” recovery.
“The Fed minutes had increased expectations but Bullard made an opposite statement, creating confusion in the market,” Ugur Kucuk, a fixed-income strategist at Is Securities in Istanbul, said in e-mailed comments. ‘Our central bank needs support from abroad to cut interest rates and raise the amount of liquidity, otherwise its hands will be tied as inflation is still at 9 percent and the lira remains under pressure.’’
Inflation in July was nearly twice the bank’s year-end goal of 5 percent, although below the 3 1/2-year high of 11.1 percent reached in April.
Central bank Governor Erdem Basci, who varies interest rates daily between 5.75 percent and 11.5 percent to rein in credit growth and control inflation, said on July 26 he may narrow the band by lowering the upper limit.
The central bank lent 6.5 billion liras ($3.6 billion) at its lowest 5.75 percent funding rate in the one-week repurchase agreements auction today, compared with 5.5 billion liras provided yesterday. It also provided 4 billion liras in one-month repo auction.
The bank has lent at its minimum policy rate since June 4, bringing down average borrowing costs for lenders. The charge fell to 6.54 percent on Aug. 17, the lowest since Nov. 21, 2011, according to data compiled by Bloomberg.