Lira Weakens as Output Drops First Time in 3 Years; Yields Fall

The lira fell to the weakest level in more than a month after Turkey’s industrial production contracted for the first time in almost three years, reigniting bets for a cut in interest rates.

The currency depreciated 0.2 percent to 1.8148 per dollar, the lowest on a closing basis since Sept. 5, at 5:08 p.m. in Istanbul. Bond yields slid five basis points, or 0.05 percentage point, to 7.63 percent.

Industrial production fell 1.5 percent from a year ago in August, the statistics office in Ankara said on its website today, compared with a 3.3 percent rise in July. Output was expected to climb 2.6 percent, according to the median estimate of seven economists surveyed by Bloomberg. The decline is the first since November 2009, according to data compiled by Bloomberg.

“This will raise eyebrows in Ankara for sure and expectations of a loosening in the monetary grip might strengthen,” Tevfik Aksoy, chief economist at Morgan Stanley in London for central and eastern Europe, Middle East and Africa, said in an e-mailed statement.

The government expects the economy will expand 3.2 percent this year, down from a 4 percent previous estimate and 8.5 percent growth last year, Deputy Prime Minister Ali Babacan said at a news conference in Ankara today.

One-year interest-rate swaps, which allow investors to speculate on the direction of borrowing costs, rose two basis points to 7.46 percent after falling as much as seven basis points, according to data compiled by Bloomberg.

“This industrial production print might lower the third-quarter GDP outcome significantly unless a sharp reversal in September offsets it,” said Aksoy.

Turkey’s central bank lent 3.5 billion liras ($1.9 billion) in its one-week repo auction at its lowest policy rate of 5.75 percent today, the same amount it provided a week ago. The bank has cut the average cost of funding to 5.80 percent as of Oct. 9 by providing funding at the lowest rate since June 4.

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