Lira Drops to 10-Month Low After Larger-Than-Expected Rate Cuts

The Turkish lira weakened to its lowest level since July 2012 and bond yields fell to a record after the central bank reduced interest rates more than forecast.

The lira fell to as low as 1.8309 a dollar and depreciated 0.3% to 1.8273 at 5:33 p.m. in Istanbul, extending this year’s decline to 2.5 percent. Yields on two-year bonds tumbled 24 basis points to a record 4.80 percent in their biggest fall since Jan. 26.

The central bank cut its benchmark repo rate to 4.5 percent from 5 percent. The bank also lowered its overnight lending and overnight borrowing rates by 50 basis points each, to 6.5 percent and 3.5 percent, respectively. The bank was expected to cut all three rates by a quarter point, according to Bloomberg surveys of economists.

“Despite recent weakness in the lira, the size of the cut highlights the central bank’s concern with the acceleration in capital inflows, driven by quantitative-easing led demand,” Mohammed Kazmi, an emerging markets strategist at the Royal Bank of Scotland in London, wrote in e-mailed comments.

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