Bloomberg News

Turkish Yields Rise to Three-Week High on Inflation Estimates

October 17, 2011

Oct. 17 (Bloomberg) -- Turkish bond yields rose to the highest in three weeks as banks raised inflation estimates following consumption-tax increases in cigarettes, alcohol, mobile phones and luxury cars.

Yields on the two-year benchmark bond rose 24 basis points, or 0.24 percentage point, to 8.67 percent at the 5 p.m. close in Istanbul, according to the Turk Ekonomi Bankasi index, advancing for a third day.

Finance Minister Mehmet Simsek announced changes to the special consumption taxes Oct. 13, saying the higher levies would raise an additional 5.5 billion liras ($3 billion) in revenue and help discourage imports of luxury cars, electronics and beverages. That prompted Garanti Securities to raise its forecast for year-end inflation to “about 9 percent” from 7 percent.

“We had been expecting 7.7 percent and now we’ll need to revise that up to something in the 9 percent range,” Inan Demir, chief economist at Finansbank AS in Istanbul, said in a telephone interview.

Philip Morris Sabanci Sigara & Tutunculuk Sanayi & Ticaret AS, the local unit of the world’s largest publicly traded cigarette maker, raised the price of its brands by between 28 percent and 44 percent, Milliyet newspaper reported today.

The tax increase adds to the impact of the weaker lira. Depreciation of Turkey’s currency will probably add 3.5 percentage points to inflation, Hakan Kara, the central bank’s chief of research, said in an Oct. 11 speech, Dunya newspaper reported.

The lira was the second-worst performer among emerging- market currencies today, weakening 1.8 percent to 1.8650 per dollar, bringing its depreciation this year to 17 percent.

--With assistance from Steve Bryant in Ankara. Editors: Linda Shen, Gavin Serkin

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Aydan Eksin at aeksin@bloomberg.net


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