Turkey’s bond yields dropped to a record as its trade deficit contracted for a 12th month on weaker domestic demand, supporting bets the central bank will cut interest rates next month.
Yields on two-year benchmark debt slid 3 basis points, or 0.03 percentage point, to 5.95 percent at 12:08 p.m. in Istanbul, the lowest since at least 2005. The lira gained less than 0.1 percent to 1.7861 per dollar, strengthening for a second day.
Turkey’s trade gap shrank to $5.5 billion in October from $8 billion a year earlier, the statistics office in Ankara said on its website today. The reduction will help extend a narrowing trend in the nation’s current-account deficit, which reached a record high at $77.1 billion last year, or about 10 percent of gross domestic product, before contracting for an 11th month in September. The inflation rate fell to 7.8 percent last month from 10.5 percent at the end of 2011.
“Today’s data supports the central bank’s accommodative monetary policy and, in this sense, a rate cut,” Ibrahim Aksoy, an economist at Seker Securities in Istanbul, said in an e- mailed statement today.
The trade shortfall was expected at $7.5 billion, according to the median estimate of eight economists surveyed by Bloomberg. Imports dropped 5.6 percent to $18.8 billion and exports increased 12 percent to $13.3 billion.
A rate reduction “would favor economic activity and prevent real appreciation of the lira in a lower-than-expected current-account deficit environment,” Aksoy said.
Turkey’s monetary policy committee is due for a meeting on Dec. 18.
Fitch Ratings raised Turkey to investment grade on Nov. 5 and central bank Governor Erdem Basci said on Nov. 12 he won’t tolerate any unwarranted currency gain jeopardizing the country’s external balances.
The lira’s advance today extends its gain this month to 0.4 percent. The benchmark yield has slumped 113 basis points this month in the biggest retreat among the emerging markets tracked by Bloomberg.
The improvement in risk appetite for Turkish assets may increase “appreciation pressure” on lira, according to a central bank report on financial stability published yesterday on its website. One-year interest-rate swaps, which indicate investor expectations on borrowing costs, were steady at 6.30 percent today, the lowest level since at least 2004.
“Given today’s merchandise trade figures, October’s current-account deficit is also likely to show a sharp narrowing,” Melis Metiner, an economist at HSBC Bank AS in Istanbul, said in an e-mailed note.
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