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Turkey Yields Drop 3rd Day as Action on Loans Seen Deferred

Turkey’s bond yields fell for a third day, erasing half of their gains since central bank Governor Erdem Basci said on March 1 that he may tighten liquidity to curtail domestic demand.

Yields on two-year benchmark bonds dropped one basis point, or 0.01 percentage point, to 5.73 percent, bringing their three-day decline to four basis points. Yields had jumped the most in almost two months on March 1, when Basci said he “could be ready to tighten using lira liquidity” to stem above-target loan growth.

“Basci’s comments on normalizing the extra liquidity in the market were perceived as tougher than they were,” Ibrahim Aksoy, an economist at Seker Securities in Istanbul, said by phone today. “Such a normalization would be only gradual, as the economy is picking up pace only recently.”

The central bank will probably take bolder steps against excessive liquidity only if loan growth rapidly accelerates in the second half of the year, Aksoy said.

Turkey’s rate of loan expansion is probably about 20 percent, above the central bank’s target of 15 percent this year, according to Fitch Ratings senior director Paul Rawkins, who spoke in an interview in London today. “This is something to keep an eye on,” he said.

The central bank is trying to limit loan growth to avert an expansion in the current-account deficit, which surged to about 10 percent of gross domestic product in 2011, a number that Rawkins said was “unsustainable.”

Turkey’s gross domestic product probably expanded by about 2.5 percent last year, Deputy Prime Minister Ali Babacan said in Ankara last week. The government is targeting a 4 percent expansion this year.

The lira gained 0.1 percent to 1.7962 per dollar at 5:10 p.m. in Istanbul, paring its loss on the year to 0.7 percent.

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