Bloomberg News

Turkey Yields Drop on Lower Funding Costs, Interest Rate Bets

January 16, 2012

Jan. 16 (Bloomberg) -- Turkish yields sank for a fourth day as the central bank reduced borrowing costs in one-week repo auctions and on speculation that the government will intervene to contain interest rates.

Yields on two-year benchmark debt decreased 28 basis points, or 0.28 percentage point, to 10.53 percent at 10:38 a.m. in Istanbul, a Turk Ekonomi Bankasi index of the securities showed. That gives a four-day drop of 91 basis points, the biggest decline since October 2009 on a closing basis.

The central bank offered to lend 7 billion liras ($3.8 billion) in a one-week repo auction at its lowest annual rate of 5.75 percent today. This is the fifth day the bank offered funding at this level after not doing so since Dec. 29.

“The funding at 5.75 percent approached 60 percent of the total funding in the market and this is a serious policy change,” Murat Yardimci, chief trader at ING Bank AS in Istanbul, said in e-mailed comments. “Funding at 5.75 percent was previously at zero.”

Prime Minister Recep Tayyip Erdogan said last week Turkey will make “strong, pointed responses” to a lobby that is pressing for higher interest rates.

“We won’t let the lobby work in comfort” because their success means “the spending power of citizens of this country who consume declines,” Erdogan said in Ankara on Jan. 11, according to state news agency Anatolia.

“The market appears to have interpreted this as signal that interest rates will not rise,” said Arda Kocaman, head of treasury at Finans Invest in Istanbul.

The central bank has more than doubled the cost of funding it provides to banks to curb a slump in the lira and cap inflation that accelerated to a three-year high of 10.5 percent last month.

--Editors: Peter Branton, Linda Shen

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

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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