Lira Weakens First Day in Four on Trade Gap; Turkish Yields Fall

The lira weakened for the first time in four days as Turkey’s trade gap widened from last year and the central bank raised the amount of funding offered at one-week repo auctions at its lowest rate.

The currency depreciated 0.4 percent to 1.9282 per dollar at 2:19 p.m. in Istanbul, extending its loss this month to 2.7 percent, the biggest retreat among emerging markets in Europe, the Middle East and Africa. Yields on benchmark notes fell for a second day.

The shortfall rose to $9.89 billion in May from $8.62 billion a year earlier, the Ankara-based statistics agency said today. The central bank provided 5 billion liras ($2.6 billion) to lenders today at the 4.5 percent policy rate, compared with zero funding at the same rate a week ago. The lira hit a record low of 1.9602 per dollar on June 24 as Prime Minister Recep Tayyip Erdogan faced the biggest anti-government protests in a decade.

The deficit “came a little better, but the trend is for a widening deficit nevertheless,” said Cristian Maggio, a strategist at Toronto-Dominion Bank in London, said in e-mailed comments today. “After a few days of positive performance, there could be investors willing to take profit ahead of the weekend. The environment remains very uncertain.”

The trade shortfall was expected at $10.4 billion, according to the median estimate of seven economists surveyed by Bloomberg.

Bond Yields

Yields on two-year notes declined six basis points, or 0.06 percentage point, to 7.54 percent. Today’s retreat pared the surge this month to 147 basis points, the most since October 2008.

Turkey’s current-account deficit, a broader measure of economic performance, for May is scheduled to be release on July 11.

“Looking ahead, we believe that the current account is set to widen to about 7% of gross domestic product this year from 6% in 2012,” Ilker Domac and Gultekin Isiklar, analysts at Citibank Inc., said in an e-mailed report from Istanbul. “In light of the rising dominance of portfolio inflows and other short-term inflows on the financing side, we are becoming increasingly concerned about the country’s vulnerability to sudden shifts in investor sentiment in global financial markets.”

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