Turkey Yields Rise to 2-Week High on Tighter Central Bank Policy

Turkey’s bond yields rose to their highest level in two weeks after the central bank tightened monetary policy by refraining to lend at its benchmark rate at a one-week repo auction. The lira weakened for a second day.

Yields on two-year bond yields advanced 24 basis points, or 0.24 percentage point, to 9.15 percent at the 5 p.m. close in Istanbul, climbing for a third day. The lira slipped 0.2 percent against the dollar to 1.9240 in the absence of a dollar sale.

The central bank held off lending at its policy rate of 4.5 percent for the first time since July 10 in what it terms an “exceptional day.” The bank raised interest rates for the first time since October 2011 after the lira slumped to a record low of 1.9740 per dollar earlier this month. It increased its overnight lending rate by 75 basis points to 7.25 percent on July 23 and said “additional monetary tightening will be implemented when necessary.”

“The exceptional day policy is disturbing both the rates and shares, spurring stop-loss sales,” Tufan Comert, a strategist at Garanti Securities in Istanbul, wrote in e-mailed comments yesterday. “For that reason, we are seeing the lira depreciation as well.”

The lira advanced to its five-week high against the dollar and closed at 1.8998 July 23 after the central bank raised interest rates. Turkey’s currency has depreciated 7.3 percent this year, making it the worst among emerging-market peers in Africa, Europe and the Middle East after the South African rand.

“The lira is underperforming after the nice run ahead of the central bank meeting,” Murat Toprak, a currency strategist for Europe, the Middle East and Africa at HSBC Holdings Plc, said in e-mailed comments. “It might be interpreted as some kind of profit taking.”

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