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Lira Drops Most in Month as Trade Deficit Narrows, Funding Rises

The lira dropped the most in almost a month, after Turkey’s August trade deficit narrowed and the central bank increased the daily funding amount to the highest in four weeks.

The lira depreciated 0.5 percent to 1.7964 per dollar by 6:42 p.m. in Istanbul, the steepest decline since Aug. 29 that pared the currency’s quarterly gain to 0.7 percent. Yields on two-year benchmark bonds rose 2 basis points, or 0.02 percentage point, to 7.58 percent at the close, bringing the drop in yields over July-September to 89 basis points.

Turkey’s trade deficit narrowed for the 10th consecutive month, the statistics office said today on its website. The gap narrowed to $5.86 billion in August, compared with $8.23 billion a year earlier. The central bank lent 7.5 billion liras at 5.75 percent in its one-week repurchase agreements auction today, the highest since Aug. 31, and 2 billion liras in one-month repo, ensuring lenders are well funded for a 9.5 billion lira repo redemptions and quarterly tax payments.

“The decline in trade balance is a sign of a slowing economy,” Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt, said in emailed comments. “The central bank has just increased again its volume at the one-week repo auction.”

The trade shortfall was expected at $8 billion, according to the median estimate of seven economists surveyed by Bloomberg.

This year’s increase in exports has been driven by sales of gold, mostly going to Iran after international sanctions were imposed on the country. Exports to the European Union, Turkey’s biggest market, declined 9.4 percent in the first eight months of the year to $38.1 billion. Imports in August retreated 4.8 percent from a year earlier.

“Imports are slowing because of weaker domestic consumption,” Nguyen said. “While that certainly helps in improving the current account deficit, it is rather questionable if this is structural or rather cyclical. The latter seems the more likely.”

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