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Lira Yields Fall on Bets Basci Getting More Dovish on EU Crisis

May 29, 2012

Bond yields in Turkey fell for a second day on speculation that central bank governor Erdem Basci is becoming more dovish on monetary policy amid rising concern Europe’s debt crisis is intensifying.

The yield on two-year benchmark debt retreated five basis points, or 0.05 percentage point, to 9.40 percent at the 5 p.m. close in Istanbul, the lowest since May 3. The lira strengthened 0.4 percent at 1.8305 per dollar, the highest level in a week.

The central bank said today it may tighten for shorter periods under a variable interest rates policy, a change from previous announcements that the bank may implement additional monetary tightening more frequently.

“This means more funding at 5.75 percent and I can say the central bank is slightly more dovish,” Sercan Kiliclar, a fixed-income trader at Akbank TAS (AKBNK), said in an e-mailed response to questions.

The central bank made the comments in a statement outlining a decision to keep the interest rate corridor unchanged at between 5.75 percent and 11.5 percent at a meeting of its Monetary Policy Committee today. Basci has varied lending rates to banks daily since October to support the lira and help stem loan growth that has drawn in imports and widened the current account deficit to a record.

The central bank provided 3 billion liras ($1.6 billion) of funding to banks at 5.75 percent today, in a second day of loosening after withholding funding at that lowest rate in the previous five working days.

“Although the rhetoric has become slightly less hawkish, we do not expect any material easing anytime soon,” Yarkin Cebeci, economist at JPMorgan Chase & Co. in Istanbul, said in an e-mailed report to clients today. “The central bank has become more confident on the disinflation process.”

Inflation may slow to about 8 percent this month from 11.1 percent in April, the highest in more than three years, Basci said on May 18. The rate will remain “well above” the central bank’s goal of 5 percent until the fourth quarter, the central bank said today.

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at

To contact the editor responsible for this story: Gavin Serkin at

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