Turkey’s benchmark bond yields fell to their record low on speculation the central bank may reduce interest rates further to slow capital inflows. The lira weakened.
Two-year yields retreated for a third day after the central bank cut overnight borrowing and lending rates yesterday. The bank had also reduced overnight rates last month, saying “the recent credit growth has been faster than envisaged, amid accelerating capital inflows.”
“We got the impression that the central bank expects the continuation of the financial inflows and will continue to cut the overnight borrowing rate,” Ibrahim Aksoy, an economist at Seker Securities in Istanbul, said in an e-mailed note, citing a meeting of bank officials today in Ankara with economists.
The yield on two-year benchmark lira notes slid two basis points, or 0.02 percentage point, to 5.64 percent at the 5 p.m. close in Istanbul, the lowest since at least 2005.
One-year interest-rate swaps, an indicator of investor expectations for rates over the period, slipped five basis points to 6.13 percent.
The lira weakened 0.2 percent against the dollar at 1.7804, its third day of depreciation, paring the gain this year to 0.2 percent.
The central bank trimmed the overnight rates by 25 basis points to 4.5 percent and 8.5 percent, respectively, after slashing them by the same amount in January.
Foreign investors bought $17.8 billion of Turkish bonds in the 12 months as of Feb. 8, raising their total holdings to $64 billion, according to central bank data published on Feb. 14.
Central Bank Governor Erdem Basci is looking to slow inflation to 5 percent this year from 7.3 percent in January, while he seeks to curb loan growth to 15 percent, according to the central bank. Lending jumped 19.1 percent in the 12 months to Feb. 8, according to data published by the banking regulator on Feb. 18.
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