In February, the current account balance in Turkey posted a deficit for the fourth month in a row due to rising energy prices. The current account deficit, which was announced as 5.15 billion dollars on a monthly basis, was in line with the market expectation of 57.3 billion dollars deficit and our expectation of 5.6 billion dollars. The current account deficit increased in the monthly period compared to the 2.45 billion USD deficit in February last year. On a 12-month basis, the current account deficit widened from $ 19.1 billion to $ 21.8 billion.
When we look at the most determining factors in the current account; With the effect of the increase in energy import costs, the deficit in goods trade increased from 2.1 billion dollars to 6 billion dollars compared to the previous year. Services posted a surplus of $1.61 billion, driven by the $1.24 billion increase in tourism revenue. We are seeing the decisive effects of the increase in energy costs in the last period. In the calculations we made regarding the current account balance taking into account the Brent oil price, we conclude that every $10 change has an effect of 4.4 billion dollars on the current account balance and half a point in the current balance / GDP ratio. In the sudden price changes this year, it is possible that the increase in energy prices at a rate much higher than the Brent oil price in natural gas prices carries this effect much further. As a matter of fact, when we look at the axis of leading foreign trade data, we observe that energy imports, which were 8.7 billion dollars in the first quarter of last year, increased almost three times, reaching an amount of 25 billion dollars in the first quarter.
While net inflows originating from direct investments on the financing side were 4 million dollars in February, there was a net outflow of 765 million dollars on the portfolio side due to the significant deterioration in risk appetite. While net sales of stocks were 228 million dollars, net sales of debt instruments were 573 million dollars. We observe that the debt rollover ratios in the finance sector are stronger, while the private sector's external debt rollback ratio performs relatively low. Official reserves decreased by $2.22 billion due to the weak financing capability brought about by the high current account deficit. Thus, the decrease in reserves in the first two months of the year amounted to 3.2 billion dollars. Net errors and omissions or capital movements of unknown origin showed a limited monthly outflow of $511 million.
It is observed that the deterioration in the foreign trade profile due to the effect of energy costs continued after March, which points to a new break in this market due to the Russian crisis in the March period. Therefore, there is a risk that the current account balance may suffer more damage in the period following March. Preliminary data show that energy imports were realized as 8.4 billion dollars in March, and the foreign trade deficit increased to 8.2 billion dollars (4.7 billion dollars in the same period of the previous year). While geopolitical risks cause energy prices to remain high, the potential losses in the tourism sector and both the direct effect of risks and the slowdown risks of global economies put pressure on exports may further widen the current account deficit. In this process, we evaluate the risks negatively.
Under all these conditions, we keep our year-end current account deficit projections at a level higher than the general expectation of the market, such as 51 billion dollars, if there is no normalization in energy prices, especially in natural gas.
The Central Bank removed the current account surplus forecast from the interest rate decision text in March, after the economy had a large deficit in January. In this process, the demand for the economic policies implemented in the country to be both monetary and fiscally expansionary and to support the growth path may layer the import bill effect due to the depreciation of the lira. The Central Bank’s rate meeting will be held under the chairmanship of Mr. Kavcıoğlu on Thursday. We expect the bank to keep the policy rate at 14%.
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