Current account deficit in April was lower than expected according to official figures, which spurred hope for further interest rate cuts from the central bank
Turkey'scentral bank issued a statement yesterday which claimed the current account deficit in April stood at $4.79 billion (TL 10.12 billion). Compared to April 2013, the current account deficit in April 2014 decreased by $3.32 billion and fell to $4.79 billion while the annual current account deficit stood at $57.79 billion. On May 22, the central bank reduced its one-week repurchase rate from 10 percent to 9.5 percent, a tactic which is utilized to increase the economy's money supply. It, however, was widely evaluated as an insufficient move to reduce the strain on investments. The central bank has vowed to keep rates high until the outlook on inflation recovers, a move which drew further criticism from the government. The markets will be watching the upcoming statements closely on June 24 from the monetary policy committee following unexpected growth and the release of data on the inflation outlook and trade. Commentingon the matter, Minister of IndustryFikri Işık said that as Turkey continues to grow, it also begins to handle the current deficit question."So far, the key element of growth in Turkey has been internal consumption; however, in the first quarter of 2014, exports has lead growth. When compared to the same period of last year, the consumption effect was 3.1 percent but it dropped to 2.1 percent this year. It clearly shows that Turkey can achieve a production-based growth rather than one that is import- or consumption-based. Even better, on the one hand we are growing, and we are closing the current deficit on the other. The recent exchange rates have an effect on this," the minister said.
Turkey's Minister of Economy Nihat Zeybekçi described the current account deficit figures announced for April as "expected." He further noted that current account deficient has decreased by 41 percent on an annual basis in April and by 33 percent when compared to the same term last year.Zeybekçi also noted the current account deficit target for the end of 2014 is $50 billion (TL 105 billion) and added, "Hopefully, Turkey's current account deficit will be much lower than $50 billion soon."
Speaking on the matter economist Dr. Dündar Demiröz noted that the increase in exchange rates has helped the reduction in the current account deficit. In order to benefit from the exchange rates, producers are motivated to increase their exports and dispose of their stocks. He also stated that in the first quarter of 2014, the driving force of the economy was export more than domestic consumption, followed by an important decrease in imports. Therefore, the current account deficit has decreased within the last months.
However, in order to maintain such a decrease, structural changes are required, otherwise with such an current account deficit, sustainable growth is not possible, said Demiröz. Foreign investments in order to balance out the instability caused by the high current account deficit can only provide a short-term solution and would mean handing the control over to someone else. If the current account deficit keeps diminishing, Turkey's dependence on foreign financing will also be reduced. "The more current account deficit narrows, the more central bank will be motivated to ctut interest rates," Demiröz said.
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