Turkey Yields Jump Most in 3 Months on Interest-Rate Corridor

Turkey’s bond yields jumped the most in more than three months after the central bank left its overnight borrowing rate unchanged, signaling a less dovish monetary policy than investors’ expected.

Yields on two-year benchmark debt rose 10 basis points, or 0.1 percentage point, to 5.91 percent, the biggest advance since Sept. 3, by the 5:00 p.m. close in Istanbul, paring this year’s gain to 510 basis points. The lira weakened 0.2 percent against the dollar at 1.7814, reducing its gain this year to 6.1 percent, the third-largest among 10 emerging markets in Europe, the Middle East and Africa.

The central bank, led by Governor Erdem Basci, kept the bottom end of its so-called rates corridor unchanged at 5 percent yesterday. The median estimate of seven economists surveyed by Bloomberg was for a 25 basis-point cut. Basci maintained the overnight lending rate at 9 percent and lowered the one-week repurchase rate by 25 basis points to 5.5 percent, in line with estimates.

“‘The central bank was not as dovish as expected at yesterday’s Monetary Policy Committee meeting,” Cengiz Erguen, a director of local markets trading at Commerzbank AG, said in e-mailed comments from London. “The 25 basis-point cut at the benchmark rate was very cautious and everyone had been betting on a 25 basis cut at the lower end of the band and people got slightly nervous when this did not come.”

Economic Growth

Turkey’s economic growth fell to 1.6 percent in the third quarter, the slowest pace since the 2009 recession.

Credit growth showed “a marked increase” and the contribution of domestic demand to economic growth “is expected to increase in the forthcoming period,” the bank said yesterday.

“The market saw the text from the central bank as very hawkish,” said Sercan Kiliclar, a fixed-income trader at Akbank TAS in Istanbul, said in e-mailed comments. “There will be no interest-rate reductions driven by economic growth.”

Turkey’s economic growth may slow to 3 percent this year from 8.5 percent in 2011, according to the median estimate of 24 analysts on Bloomberg.

Basci introduced the rates band in October of last year that allows him to adjust interest rates on a daily basis. It was created to balance above-target inflation, slowing economic growth and high volatility of the lira.

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