Turkey's Central bank head says current account gap limiting growth

ANKARA - Doğan News Agency

Turkish Central Bank Gov Erdem Başçı speaks at a conference in the southeastern province of Gaziantep. AA photo

Turkey’s central bank chief said on Dec. 11 the country’s huge current account deficit was holding back economic growth, adding that the bank will stay cautious on monetary policy until inflation falls in line with its targets.

Turkey has seen explosive consumption-led growth over the past decade, with per capita wealth almost tripling in nominal terms. But its low savings rate and huge energy deficit have made it heavily dependent on volatile foreign capital flows.

For the first 10 months of the year, the country’s current account deficit widened to $51.901 billion from $39.553 billion a year earlier, central bank data showed on Dec. 11.

“If the current account deficit comes to sustainable levels, we could grow more easily,” central bank governor Erdem Başçı said at a monetary policy conference in the southeastern province of Gaziantep.
Başçı added that the export-import ratio rose above 65 percent in November, and said he expects an improvement in the current account deficit excluding gold from November.

“Gold trade negatively affected the current account gap in October. We believe the positive growth rates and the loss of value in Turkish Lira will be determinant in the current account deficit in the coming months. Besides, we expect some positive contribution from the possible increase in the exports due to the recovering trend in the Eurozone,” said ING Bank economist Muammer Kömürcüoğlu.

“When we look at the latest growth data, we are seeing growth starting with support from consumer spending. We are seeing net exports’ contribution to growth improving,” Başçı said.

Turkey’s economy grew more than expected in the third quarter thanks to strong domestic demand and private investment, with output growing 4.4 percent year-on-year, beating a Reuters poll forecast of 4.05 percent.

Steps on excessive household borrowing

Baççı said steps on excessive household borrowing would support an improvement in the current account deficit.

In one of the world’s most complex policy mixes, the central bank has been striving to support a weak lira with forex auctions, liquidity adjustments and verbal intervention while avoiding interest rate hikes that it fears could cool growth.

The bank held fire on rates last month but signaled more tightening via day-to-day monetary operations, as it worries about a withdrawal of U.S. monetary stimulus that could weaken the lira and push inflation up further.

The central bank in October raised its inflation forecast for the end of 2013 to 6.8 percent and for the end of 2014 to 5.3 percent.

“The central bank will maintain its cautious monetary policy stance until the inflation outlook is in line with medium-term targets,” Başçı said.

The government is trying to control rampant consumer loan growth and raise its domestic savings rate from historic lows to narrow the current account gap, which is expected to stand at 7.1 percent of gross domestic product by the end of 2013.

The country’s banking watchdog last month proposed curbing consumers’ use of credit cards to pay for goods by monthly installments, aiming to reduce the nation’s dependence on foreign capital.