Dec 11 2018

Turkey posts record current account surplus

Turkey posted a record current account surplus in October after a currency crisis pushed the economy into contraction.

The central bank said the current account, the widest measure of outflows and inflows of goods and services, was $2.77 billion in surplus in October compared with a $3.84 billion deficit in the same month of 2017. The surplus reduced the 12-month rolling deficit to $39.4 billion, or 4.5 percent of gross domestic product, the data published on Tuesday showed.

Turkey has posted a current account surplus for three-straight months as demand for imports slumped. The lira fell to a record low of 7.22 per dollar in August in a downward spiral sparked by concerns over an overheating economy and a political crisis with the United States.                

Goods posted a surplus of $799 million compared with a deficit of $5.64 billion in October 2017 as exports outpaced imports. Portfolio investment recorded a net inflow of $491 million. Other investment saw a net outflow of $2.61 billion as Turkish banks placed more money in foreign deposit accounts and non-residents pulled capital out of domestic banks.

Turkey typically posts large current account deficits during times of economic growth because it imports more goods than it exports to meet the demand of consumers and businesses for higher technology products. But the lira’s slump, along with higher interest rates and inflation, have pushed the economy into contraction. Turkey’s economy posted negative growth of 1.1 percent in the three months to September, the Turkish Statistics Institute said on Monday.

The lira fell 1.4 percent to 5.4 per dollar at noon local time in Istanbul

Treasury and Finance Minister Berat Albayrak said this week that he expected Turkey’s 12-month current account deficit to narrow to less than $36 billion by the end of the year compared with $47 billion in 2017, when the gap was equivalent to about 5.5 per cent of gross domestic product.

Investor attention will now turn to central bank policymakers, who meet on Thursday to decide on interest rates.

The central bank raised its benchmark lending rate by 625 basis points to 24 percent in September to help arrest the lira’s declines. Some investors are concerned that the bank, which has come under pressure from the government to keep rates low, may decide to cut rates to stimulate economic growth. President Recep Tayyip Erdoğan’s Justice and Development Party (AKP) faces nationwide local elections in March.