Turkey's soft underbelly CAD swells 22.4 pct in first 5 months

Turkey's current account deficit surged by 22.4 percent to reach 31.9 billion in the first five months of 2013. 
Turkey's current account deficit (CAD) surged by 22.4 percent to reach 31.9 billion in the first five months of this year, government data revealed on Thursday.
The Turkish Statistics Institute (TurkStat) released its foreign trade balances figures on Thursday, showing that the CAD in May also increased by 41.7 percent over the same month in 2012. May's CAD was at $7.8 billion, above an earlier market poll expectation of $6.8 billion.
Evaluating the figures in a written statement on Thursday, Economy Minister Zafer Çağlayan cited an increase in gold imports as the factor that brought the CAD up. “Turkey imported gold worth $4.8 billion in the months of April and May this year. This was due to an increase in domestic demand for the valuable metal following a decline in price in global markets. … We expect the trend of the surge in gold imports be temporary,” the minister explained. The government projects the year-end CAD to be around $60.7 billion; this figure was $48.8 billion in 2012. According to Çağlayan, the CAD should make it below the projected figure for the year-end.
A high foreign trade deficit remains the major factor responsible for Turkey's CAD. Turkey's foreign trade deficit arises predominantly from an import dependency on energy and intermediate goods, especially oil and natural gas.
In addition to metal and energy imports, the Turkish foreign trade is vulnerable to fluctuations in foreign exchange. The share of imported goods in Turkey's main manufacturing fields of automobiles, chemicals, mining, plastics, iron and steel is around 70 percent. Manufacturers at home buy these imported goods in US dollars. This means the more the Turkish lira loses against the greenback the more it adds to the country's foreign trade deficit, and thus to the CAD.
Tourism revenues, an important subgroup in the service sector, increased by $1.69 billion between January and May compared with the same months last year, reaching $8.27 billion. Turkey's tourism spending hit $1.9 billion in the same period.
Meanwhile, a total of $1.55 billion in foreign direct investment (FDI) exited Turkish markets in May, Turkey's central bank said on Thursday. The bank said a total of $2.87 billion in cash exited Turkish markets. In the month of May, Turkey saw $2.84 billion in US dollars enter markets.

Markets, lira pare gains after Fed minutes

On Wednesday night, the US Federal Reserve (Fed) released its meeting's minutes, suggesting a continuation in policy to inject cash to markets. In a statement following the meeting, Fed Chairman Ben Bernanke said that they would “continue to pursue a highly accommodative monetary policy for [the] foreseeable future.” Markets mostly read these latest statements as a recovery in sentiment from May 22, when Bernanke hinted that the Fed may look to slow stimulus.
With morale boosted after these words, European shares hit a five-week high on Thursday while Turkish main benchmark index Bourse İstanbul (BIST) gained 1.7 percent. The Turkish lira recouped losses as well, gaining around 1 percent against the US dollar following a $50 million forex sale by the Turkish central bank on Thursday afternoon. One US dollar was traded at 1.944 lira on Thursday afternoon, well below Monday's historic high of 1.974.
The lira has fallen almost 9 percent against the dollar since May. Turkey's central bank sold $1.3 billion on Wednesday to prop up the lira as foreign capital that had flooded in earlier this year continued to flee on fears concerning US monetary policy and domestic political uncertainties. Total sales for the year now stand at $6.2 billion. Also on Thursday, the central bank offered TL 9 billion in a one-week repo at 4.5 percent for the first time this week.
Turkey's two-year bond yield hovered around 9.59 percent on Thursday, its highest level since May of 2012.

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