ISTANBUL: Turkish bond yields fell to all time lows and stock prices jumped on Monday as lower-than-expected inflation data boosted expectations the central bank will cut rates again in December.
Turkey's consumer price index rose 0.38 percent month-on-month in November, below a Reuters poll forecast of a 0.91 percent rise, for a year-on-year increase of 6.37 percent.
The figures sent the yield on Turkey's two-year benchmark bond to its lowest ever level of 5.76 percent, from Friday's close at 5.93 percent.
"It seems like low inflation data boosted prospects that the central bank would cut its rates. Also lower-than-expected trade deficit data on Friday and a continued positive mood after the rating upgrade... contributed to the fall in bond yields," said Pinar Uslu, strategist at ING's Affluent Banking unit.
"We think the fall in bond yields may halt ahead of the release of the real exchange rate (measure) tomorrow," she added.
While annual inflation remains well above the central bank's 5 percent target, it has been easing due to slowing domestic demand in the economy - the fastest-growing in Europe last year - and helped by a recovery of the lira this year.
After credit ratings agency Fitch upgraded Turkey to investment grade early in November, the central bank governor Erdem Basci said the bank would act swiftly if the real exchange rate reached 120-125 on the bank's index, to protect the economy from destabilising capital inflows.
The real exchange rate stood at 117.4 in October.
The bank will release the data for November on Dec. 4 at 1230 GMT.
The next policy meeting will be on Dec. 18.
Seeking to counter a slowdown in the economy, the central bank cut its overnight lending rate for a third consecutive time in November, to 9 percent, and said it may consider cutting its policy rate and overnight borrowing rate if necessary for financial stability.
The two-year bond yield has fallen around 125 basis points since Fitch's upgrade decision. Since the end of 2011, it has fallen around 575 basis points.
Istanbul's main share index hit an all-time high of 73,566.87 points after Monday's inflation data.
The index was up 0.66 percent at 73,541 points, outperforming a 0.32 percent fall in the global emerging markets index.
"The low inflation supported rate cut hopes and the falling trend in bond yields.
Therefore, banking shares are trading strongly," said Altan Aydin, equity analyst at Garanti Securities.
"Expectations of a credit upgrade (for Turkey) from Standard&Poors and another quantitative easing from the Federal Reserve on Dec. 10-11 also supported the shares," he said.
The lira weakened slightly to 1.7875 to the dollar from 1.7862 late on Friday.
Against its euro-dollar basket, it eased to 2.0588 from 2.0539.
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