Lira Weakens With Bonds as Inflation Spurs Call for Higher Rates

Turkey’s lira slid toward its weakest close on record and bonds fell as a faster-than-forecast pickup in inflation spurred speculation policy makers need to do more to rein in price growth.

The currency depreciated 0.7 percent to 2.9631 against the dollar at 7:33 p.m. in Istanbul, extending this year’s decline to 21 percent. Two-year note yields rose the most in more than a week.

Following a two-month slowdown in inflation, the pickup in August came as central bank Governor Erdem Basci pledged to tighten monetary policy through the cost of funding for banks while leaving the main rate unchanged on Aug. 18. Heightened security risks and a call for a second election this year to form a government have weighed on the lira, exacerbating efforts to contain consumer prices.

“We continue to believe that a tighter monetary policy stance is
required to keep inflationary pressures under control,” Ozgur Altug, the chief economist at BGC Partners in Istanbul, wrote in an e-mailed report. “Politically, the bank can’t do much until general elections, which will be held on Nov. 1.”

Inflation accelerated to 7.14 percent in August from 6.81 percent in July, Turkey’s statistics bureau said Thursday. Economists had estimated the rate would rise to 6.86 percent, according to a Bloomberg survey.

The yield on two-year government notes climbed 13 basis points to 11.12 percent, the highest in more than a week. The 10-year yield jumped 12 basis points to 10.38 percent.

“The central bank’s alternative monetary policy measures will soon fail to satisfy the market’s call for higher lira rates,” Ipek Ozkardeskaya, a markets analyst at London Capital Group, said in an e-mailed report.

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