The Turkish lira weakened for the first time in four days as the central bank extended its policy of cheaper funding and on speculation inflation will fall further.
The lira weakened for the fourth day, depreciating 0.4 percent to 1.8253 per dollar, heading for its lowest close since June 28. Yields on two-year benchmark debt sank as much as 12 basis points, or 0.12 percentage point, in intraday trade and erased losses to close unchanged at 8.02 percent, snapping the biggest stretch of declines since July 2009.
The central bank lent today at its minimum 5.75 percent policy rate for a 25th consecutive day, the longest stretch of lending at the lowest rate since March 21. The overnight cost of borrowing fell to 7.08 percent in the interbank market, down from 10.5 percent at the beginning of this year. The Turkish economy shrunk 0.4 percent in the first quarter and inflation dropped to 8.9 percent in June from 11.1 percent in April.
“We anticipate that the central bank will continue to reduce the cost of funding at a time the whole world cuts rates,” Fatih Keresteci, a strategist at HSBC Bank AS, said in an e-mailed note.
The central bank will reduce its 6.5 percent inflation forecast for 2012 toward the 5 percent goal when it releases its quarterly inflation report on July 26, central bank Governor Erdem Basci told executives in a speech in the eastern city of Bursa on July 6.
“The lira has become vulnerable again, as the Turkish central bank isn’t expected to be as hawkish anymore and tighten monetary policy every time the lira starts to weaken considerably,” Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in e-mailed comments. The lira slumped 18 percent last year in the biggest depreciation worldwide after the central bank cut rates to a record low of 5.75 percent in August.
The bank spent $16 billion of its reserves between August and January to defend the currency, increasing rates as high as 12.5 percent within an unorthodox interest-rate corridor introduced in October.
Inflation is expected to fall to 6.80 percent in 12 months, compared with an estimate of 6.93 percent two weeks ago, the Ankara-based bank said on its website on July 6. The rate of price increases is predicted at 7.02 percent at the end of the year, against a previous estimate of 7.38 percent, according to a fortnightly central bank survey of economists and business leaders.
Turkey’s industrial output for May expanded at 5.9 percent, the fastest annual pace since November, according to data released by the statistics office in Ankara today. Output was expected to rise 2 percent, according to the median estimate of six economists surveyed by Bloomberg.
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