Turkish Yields Drop as Erdogan Says 6% Interest Rates Too High

Turkish bond yields dropped for a third day as Prime Minister Recep Tayyip Erdogan said interest rates of about 6 percent are too high.

“We’ve pulled down interest rates from as high as 63 percent to about 6 percent since 2002,” Erdogan said in a speech at the stock exchange in Istanbul. “This is still high. I hope we will be lifting the pressure of interest on consumers by decreasing it further.”

The comments, which came two days after central bank Governor Erdem Basci said a “measured rate cut” may be in store, sent yields on two-year lira bonds tumbling as much as 12 basis points to 6.04 percent. They were down seven basis points at 6.09 percent at 2:40 p.m. in Istanbul today, set for the lowest close since March 18. The weekly decline at 26 basis points is the steepest since Jan. 11.

“Yields were already on the decline, and the statement seems to have strengthened the trend,” Haluk Burumcekci, chief economist at Burgan Securities in Istanbul, said in a phone interview. “But the real catalyst is the signal given by the central bank on short-term interest rates.”

The central bank’s benchmark repo rate is 5.5 percent, while the overnight lending rate and the overnight borrowing rate, which comprise Basci’s interest rate corridor, are 7.5 percent and 4.5 percent, respectively.

Moderate Response

The central bank’s real effective exchange rate, which measures the lira against an inflation-weighted basket of currencies used by Turkey’s trading partners, rose to 119.95 in March from 119.75 the previous month, the central bank said yesterday. A reading between 120 and 130 could prompt a “moderate” response, Basci said April 3. The lira appreciated 0.1 percent to 1.8005 per dollar today.

The rate cut outlook is despite inflation accelerating to an annual 7.29 percent in March, exceeding the median forecast for 7.03 percent in a Bloomberg survey of 10 analysts.

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