Turkish Stocks Fall With Bonds as Rally Sparked by Simsek Fades

  • Borsa Istanbul 100 posts worst performance worldwide
  • Pressure on central bank will intensify: Rabobank’s Matys

Turkish stocks and bonds fell as investors tempered their optimism following the re-appointment of a deputy prime minister associated with a decade-long economic expansion.

The yield on 10-year sovereign notes rose four basis points to 10.07 percent, giving up some of the ground achieved after the biggest drop since November on Tuesday as Deputy Prime Minister Mehmet Simsek kept his job in a cabinet reshuffle. A day later, investors and analysts focused on whether he can keep in check efforts by President Recep Tayyip Erdogan to interfere in monetary policy. Stocks were the worst performers worldwide today.

Erdogan has in the past repeatedly called for lower Turkish borrowing costs to boost growth, raising concern the central bank will struggle to defend the currency and keep the current-account deficit in check. The country’s balance of payments shortfall is forecast to widen to 4.5 percent of output this year, the third-biggest gap among the Group of 20, according to data compiled by Bloomberg.

"Pressure on the central bank to lower interest rates further will not only prevail, but it may intensify," Piotr Matys, an emerging-market strategist at Rabobank in London, said in an e-mailed note. "The government may also pursue unorthodox policy measures to boost growth, which could lead to imbalances such as widening current-account deficit and fiscal loosening."

World’s Worst

The Borsa Istanbul 100 Index fell 1 percent, the steepest drop among 93 benchmarks tracked by Bloomberg worldwide. Stocks declined even as global peers rallied, sending the MSCI Emerging Markets Index up the most in six weeks. Turkey’s benchmark rallied 3.5 percent on Tuesday, the most worldwide.

The lira gained 0.3 percent higher at 2.9379 by 7:27 p.m. in Istanbul after earlier weakening as much as 0.2 percent.

Turkey’s central bank cut its overnight-lending rate for a third month on Tuesday, calling the reduction a “measured” step toward simplifying its monetary policy. Policy makers said the pace of rate cuts would probably slow, according to Bora Tamer Yilmaz, an economist at Ziraat Yatirim who attended a meeting with bank officials in Ankara today.

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