Turkey Stocks Jump With Bonds on Bet Babacan to Keep Economy Job

Turkish stocks rose the most in the world and bonds gained as speculation Deputy Prime Minister Ali Babacan will keep his role in the new government shored up confidence that economic policy won’t be disrupted.

The Borsa Istanbul 100 index jumped 1.9 percent to a three-week high of 80,754.28, the most among 93 global equity gauges tracked by Bloomberg. Yields on two-year benchmark bonds declined 14 basis points to 9.07 percent, the most in 12 days, while the lira strengthened 0.6 percent to 2.1649 against the dollar. The Turkish central bank will convene tomorrow to decide on interest rates.

Incoming Prime Minister Ahmet Davutoglu has decided to keep Babacan in the cabinet, Yeni Safak newspaper reported today, without saying how it got the information. The ruling AK Party is seeking continuity in the economic administration as Recep Tayyip Erdogan prepares to take on his new role as Turkey’s first popularly elected president on Aug. 28, an official with knowledge of the plans said last week.

Speculation on Babacan’s role “is the driver of market gains,” Burak Cetinceker, a money manager at Strateji Menkul Degerler AS, said in an e-mail.

Babacan, who has been in charge of the Treasury since the AK party came to power in 2002, will remain the economy chief, officials said on Aug. 22, asking not to be named in line with government policy. The 47-year-old has served as a counterweight during times of market turmoil, having shielded the central bank’s independence against government pressure that Fitch Ratings deems a risk to the economy.

Reducing Uncertainties

“Having Ali Babacan and Finance Minister Mehmet Simsek in the new cabinet may help reduce these uncertainties and lessen worries of the credit rating agencies,” Fatih Keresteci, an Istanbul-based strategist at HSBC Holdings Plc, said in an e-mailed report.

Central Bank governor Erdem Basci will keep the benchmark repurchase rate unchanged tomorrow at 8.25 percent, according to nine of 16 economists surveyed by Bloomberg.

The government has been urging policy makers to accelerate rate cuts to spur economic growth, even as the central bank lowered the benchmark rate by a total 175 basis points since January. The lira has gained 4 percent since an emergency meeting was held Jan. 28 to unexpectedly raise interest rates and halt a run on the currency sparked by political instability.

Erdogan last week named Davutoglu as his successor after relinquishing his 11-year tenure as prime minister.

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