Turkey's central bank data showed on Monday that the nation's current account deficit which was long regarded as a weak point in the economy, narrowed more than expected in February. The deficit fell to $1.785 billion in February from $2.338 billion in January, the central bank data showed, lower than a Reuters poll forecast of $2.2 billion.
The narrowing in the gap was largely on account of oil price drop. Turkey, which depends on energy imports, has benefited from the fall in oil prices. But as oil prices are see bottoming out, this advantage could be less pronounced in 2016.
“The deficit is unlikely to improve from here on, but equally it should remain fairly small by recent standards,” said William Jackson, an economist at Capital Economics.
What is more, preliminary trade data for March suggest that this positive dynamic will continue in the next reading. The Balance of Payment data also highlighted a slight recovery in portfolio flows as EM sentiment improved, while FDI flow suffered because of increasing security concerns.
Overall, the current-account trend was encouraging and TRY rallied yesterday. The lira firmed to 2.8390 against the dollar by 0930 GMT from 2.8455 on Friday and is at the time of writing trading at 2.8285.
“This backdrop may provide the central bank with confidence to lower interest rates - we expect an additional 25 basis point cut in the overnight lending rate this month.” adds William Jackson.
