Turkish bond yields, lira dip as low growth data buoys rate cut expectations

ISTANBUL: The Turkish lira eased and bond yields slipped on Monday, as weak growth and industrial output data boosted prospects of the central bank cutting rates in December to counter a slowdown in the economy.

Turkish gross domestic product growth slowed to 1.6 percent year-on-year in the third quarter from 3 percent in the second quarter and industrial production slumped 5.7 percent year-on-year in October, data showed.

Analysts polled by Reuters saw growth of 2.6 percent in the quarter while industrial output was seen falling 2.5 percent.

The yield on the two-year benchmark bond inched down to 5.73 percent after the data from Friday's close of 5.76 percent.

"The data was weaker-than-expected, which gives the central bank more leeway to cut its rates. Therefore, we saw limited buying in the market. As investors expect a measured rate cut and this is the year-end, the trading volume is thin," said Burak Maldar, a vice president at Halk Invest.

"We expect the bank to cut its overnight borrowing rate and its policy rate by 25 basis points," Maldar said, adding that the two-year yield would stay above 5.70 percent until Dec. 18 when the bank is due to hold its policy meeting. It hit a record low of 5.67 percent last Wednesday.

Aiming to counter the economic slowdown, Turkey's central bank has been easing monetary conditions since the middle of the year. At its meeting in November, it cut its overnight lending rate to 9 percent for the third time and said it may consider reducing its policy rate and overnight borrowing rate if necessary to ensure financial stability.

The bank's overnight borrowing rate currently stands at 5 percent and the policy one-week repo rate is at 5.75 percent.

By 0938 GMT, the lira eased to 1.7899 to the dollar from 1.7893 late on Friday. Against its euro-dollar basket, it firmed to 2.0505 from 2.0530.

Istanbul's main share index was virtually flat, down just 0.04 percent at 76,211 points, underperforming a 0.23 percent rise in the global emerging markets index.