Turkish benchmark bond yields rose to the highest in more than four months after the central bank sought to end confusion over its monetary policy, saying the measures should have a damping effect on credit growth.
Yields on two-year benchmark bonds climbed eight basis points to 6.41 percent by 5:00 p.m. in Istanbul, the highest close since Nov. 16. They extended their surge in March to 72 basis points, the biggest monthly jump since October 2011. The current-account deficit will probably increase in the short-term, and the existing monetary policy framework will help to limit further deterioration, the central bank said in a statement on its website today.
“The central bank is saying it will tighten the liquidity,” Onder Turker, a fixed-income trader at Finansbank AS in Istanbul, said in e-mailed comments. “Market players who had thought that the last two weeks’ tightening in lending might be temporary are now convinced that this will be a permanent tightening.”
Economists were split on whether policy is looser or tighter after central bank Governor Erdem Basci cut one of his three interest rates while saying he’d use an experimental tool to manage liquidity. BNP Paribas SA, Oyak Securities and Ata Invest interpreted the move as loosening policy to focus on boosting growth, while BGC Securities said it was contractionary. Morgan Stanley described it as “neither here nor there” and Finansbank called it “confusing.”
The lira depreciated 0.4 percent to 1.8211 a dollar, extending its loss this quarter to 2.1 percent, the biggest such retreat since the three months to the end of September 2011.
The Monetary Policy Committee in Ankara yesterday cut the upper end of its interest-rate corridor, the overnight lending rate, to 7.5 percent from 8.5 percent, while leaving the lower end, the overnight borrowing rate, unchanged at 4.5 percent. It also left the benchmark one-week repurchase rate unchanged at 5.5 percent. None of the economists in a Bloomberg survey correctly predicted the changes.
The overnight cost of borrowing jumped to 6.14 percent yesterday, the highest since March 15, before easing to 5.83 percent today, as the bank seeks to curtail annual loan growth to 15 percent. Turkish loans grew 19.9 percent in the 12 months to March 15, according to banking regulator data released this week.