June 3 (Bloomberg) -- Turkish bonds fell, raising yields the most in two months, after inflation accelerated by the most in almost a decade and spurred speculation of a rate increase by the central bank.
Yields on benchmark two-year debt climbed 27 basis points to 9.02 percent, the biggest increase since March 23, and closed at 8.88 percent at 5 p.m. in Istanbul, according to data compiled by Bloomberg. The lira gained 0.2 percent to 1.5781 per dollar, its strongest level in two weeks.
Inflation surged to 7.2 percent in May from 4.3 percent a month earlier, the statistics office in Ankara said on its website today. It was the biggest increase in the annual rate since January 2002 and exceeded all the forecasts in a Bloomberg survey of 12 economists. In May, prices rose 2.4 percent.
“This is way higher than the economists’ expectations,” Isik Okte, a trader at Istanbul-based Finans Invest, wrote in e- mailed comments. “Now the markets believe that rate hikes will come at an earlier date.”
The central bank has increased reserve requirements for banks four times since December in a bid to slow lending, while keeping the benchmark one-week repo rate at a record low 6.25 percent.
There are “clear signs surely now for the central bank that the economy is overheating and they need to move away from their unorthodox policy response,” Tim Ash, head of emerging- market research at Royal Bank of Scotland Group Plc, wrote in a note to clients.
The ISE National 100 index of stocks slid 0.5 percent to close at 62,806.94.
Turkey’s current-account deficit, forecast by the government at $39.3 billion or 5.4 percent of gross domestic product this year, reached $60.5 billion in the 12 months through March as growth boosted demand for imports.
“The main flipside is the widening current-account deficit, and until we get more hawkish comments from the central bank, the lira looks set to come under further pressure,” Simon Quijano-Evans, chief economist at ING Groep NV in London, said in a note.
--Editors: Alexander Nicholson, Linda Shen
To contact the reporter on this story: Selcuk Gokoluk in Istanbul at firstname.lastname@example.org
To contact the editor responsible for this story: Gavin Serkin at email@example.com