Turkey: The current account balance has a deficit for 16 consecutive months in February

In February, current account balance in Turkey gave USD 2.61 billion deficit.

In February, current account balance in Turkey gave USD 2.61 billion deficit. The current account deficit, announced on a monthly basis, was realized above the market expectations of 2.50 billion USD. The current account balance increased by 1.23 billion USD in the monthly period compared to February of the previous year. On an annualized basis, there was a current account deficit of 37.8 billion USD.


We will have to monitor many factors that determine the current account deficit together. It can be said that these factors increase the uncertainty in terms of both decreasing and increasing effects of the current account deficit. We have to observe the current deficit-increasing effect of the problems that may be experienced in the tourism sector due to Covid and the increase in raw material and transportation costs in international markets. Whereas; The slowdown in gold imports compared to the previous year and the decline in domestic demand and credit expansion due to high interest rates may offset the growth in the current account deficit, with the imports suppressing effect. In the foreign trade balance, the increasing effect of imports continues. The effects of the recent increase in raw material prices and the effect of the growing transportation problems on freight prices have also caused the import-related costs to grow. At the same time, the domestic pricing of these goods is affected by these factors and contributes to the increase in inflation. The import cost effect created by the increase in exchange rates also increases the inflationary effect. In terms of service balance, the risk is mostly in the tourism sector. Because the number of cases has increased domestically; Therefore, tourism from European countries or Russia may be adversely affected. A similar loss in tourism to the previous year will make it very difficult to finance the current account deficit.


On the financing side, net inflows from direct investments were 714 million USD in February, while a net inflow of 273 million USD on the portfolio side. While net sales in stocks were 486 million USD, a net purchase of 546 million USD was made in debt instruments. Official reserves rose by USD 925 million during this period, when former Central Bank Governor Naci Agbal, who was replaced in March, promised to support the country's money buffers. In the previous period, the sale of foreign currency by state banks to support TRY caused a decrease in reserves. In February 2021, the current account balance had a deficit of 2.61 billion USD, while net errors and omissions or capital movements of unknown origin showed a monthly inflow of 1.88 billion USD. Net errors and omissions in the first two months of the year amounted to 5.42 billion USD.


In 2020, the highest current account deficit was recorded since 2017 with 36.7 billion USD. 2021 could be a year with less current account deficit due to balancing factors. However, due to the uncertainty of the tourism season, the risk of increasing the current account deficit outweighs. The potential loss effect is also of great importance in terms of financing the current account deficit. Apart from this, the factor of stability in exchange rates and interest rates is important. Because the cost effect from imported goods and domestic demand conditions will depend on these factors. Central Bank policies are at the forefront as a determinant of this. We do not expect any changes in interest rates on April 15th MPC. We think that early-term interest rate cuts will further increase the risks on inflation, and the current increase in inflation will continue to be affected by PPI and cost factors. For this reason, we believe in the necessity of continuation of tight monetary policy in the foreseeable future.


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