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Turkish Yields Fall 2nd Day on Cut to 2014 Inflation Estimate

Turkey’s benchmark lira bond yields fell for a second day after the central bank cut its inflation forecast for next year.

Yields on benchmark two-year notes fell for a second day, down three basis points, or 0.03 percentage point, to 5.82 percent at the 5 p.m. close in Istanbul. The lira appreciated 0.1 percent against the dollar to 1.7705, recovering from its lowest level in almost three weeks yesterday.

Turkey’s inflation will stabilize at 5 percent in the medium-term, central bank Governor Erdem Basci said at a news conference in Ankara while releasing the bank’s inflation report today. He reduced the 2014 inflation estimate to 4.9 percent from an earlier estimate of 5 percent and maintained this year’s forecast at 5.3 percent. The central bank will not stay “indifferent” to currency volatility and faster-than-planned loan growth that may endanger inflation targets, Basci said.

Basci “sounded more confident on inflation target,” Bulent Topbas, a fund manager at Strateji Menkul Degerler AS in Istanbul, said in e-mailed comments. “Inflation target can be met as the lira is on an appreciation trend.”

The inflation rate in 2012 fell to a 15-month low of 6.2 percent in December, compared with 11.1 percent in April, its highest level since October 2008, as the nation received its first investment-grade ranking in 18 years. The Ankara-based bank lowered its overnight lending and borrowing rates by 25 basis points each on Jan. 22.

“The prevailing expectation in the bond market is that short-term rates will come down as the central bank cut rates and the cost of funding declines,” Arinc Yurtkuran, a fixed-income trader at ING Bank AS in Istanbul, said in e-mailed comments.

The central bank reduced the average cost of funding for lenders to 5.63 percent yesterday from 10.83 percent on May 25 as economic growth fell to 1.6 percent in the third quarter, the lowest economic expansion since 2009.

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