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Turkey: CAB gives a surplus with the contribution of tourism and trade balance

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In September, the current account balance in Turkey posted a surplus for the second month in a row thanks to the increase in exports and tourism revenues. The current account surplus, which was announced as 1.65 billion dollars on a monthly basis, was more positive than the market expectation of 1.25 billion dollars (Tera: 0.7 billion dollars) and the revised August data, which was 814 million dollars. In the monthly period, the current account balance is more positive than the 2.34 billion USD deficit in September last year. On a 12-month basis, the current account deficit narrowed to 18.4 billion dollars from 23 billion dollars compared to the previous month.

 

We observe a periodic current account surplus above our expectations. Merchandise trade was a deficit of $1.02 billion, compared with a deficit of $3.75 billion in September 2020. On the trade balance side, there has been a severely weak course in gold imports for the last few months. Although the one-time increase effect of the last year is eliminated, gold imports are below the normal averages. The services trade balance gave a surplus of $3.67 billion compared to $1.75 billion a year ago, emphasizing the role of tourism and other services in improving Turkey’s external balances. According to the data published by the Ministry of Culture and Tourism, foreign tourist arrivals in September increased by approximately 60% on an annual basis and reached 3.51 million. The fact that tourism is in an image approaching 2019 levels due to its contribution this year has a positive effect on the current account surplus. We think that these factors will make a positive contribution to the current account balance in October as well, and that a periodical surplus of around 1.8 to 2 billion dollars can be achieved. Central Bank Governor Mr. Şahap Kavcıoğlu said last month that Turkey’s 2021 current account deficit is estimated at $15 billion-17 billion. Although we think that the foresight and guidance in question will hold, we have revised our year-end annual current account deficit expectation to 14 billion dollars.

 

On the financing side, net inflows originating from direct investments were 1.09 billion dollars in September, while on the portfolio side, net inflows were 1.22 billion dollars. While net purchases in stocks were $62 million, net sales in debt instruments were $189 million. Official reserves increased by $5.59 billion. In September 2021, the current account balance gave a surplus of 1.65 billion dollars, while capital movements classified as net errors and omissions, that is, of unknown origin, showed a monthly inflow of 1.76 billion dollars. In the first 9 months of the year, inflows due to net errors and omissions amounted to 13.51 billion dollars.

 

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In contrast to the Central Bank’s current account balance approach, we think that there are deficiencies in the model of the exchange rate stabilization idea to be achieved with export revenues in the short run, so the current account balance cannot be very relevant to the exchange rate at this stage. Although we think that the cuts made or planned by the Central Bank in the policy rate are not met by the economic conditions, we form our predictions regarding the action plan in line with the latest statements and guidance. The Central Bank’s guidance that there is limited space in terms of interest movements was made both in the presentation of the Inflation Report and it was included in Governor Mr. Kavcıoğlu’s statements. Although high inflation is an important factor of reservation, the Central Bank’s giving more space to the credit and balance of payments perspective forms the basis for our expectation that rate cuts will continue. This shows that although there are deficiencies in the economic basis, the MPC meetings in November and December may also be subject to rate cuts. We foresee the policy rate as 15% for this year, and we estimate that the Central Bank will cut 100 basis points next week.

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