In December, the current account balance in Turkey, gave USD 3.21 billion deficit. While the monthly current account deficit was realized slightly below the market expectations of 3.70 billion USD and our expectations of 4 billion USD, it increased from the level of 2.74 billion USD in the same period of the previous year. On an annual basis, the highest current account deficit after 2017 was posted as 36.7 billion USD. While the trade balance deteriorated due to the increase in gold imports, the current account deficit had a deficit in the 14th month.
In 2020, while observing the increasing effect of rapid loan growth and monetary expansion on economic growth, we also observed the increasing effect of the current account deficit. While the effects of increasing import demand in the trade balance and the increase in gold imports throughout the year were in question, the income loss due to the problems in tourism was also effective in recording a high current account deficit. Turkey's economy normally posted high current account deficit for the years that recorded high growth rates. But in a low growth year due to the pandemic, the annual current account deficit was realized due to these loans effect at last 3 years’ highest level.
On the financing side, net inflows from direct investments stood at 836 million USD in December, while a net inflow of 5.2 billion USD on the portfolio side. While net purchase was 269 million USD in stocks, 2 billion USD net purchases were made in debt instruments. Official reserves increased by 6.73 billion USD in this period due to the policies of the new economy management. The policies aimed at supporting TRY, which were implemented before the November period when the Central Bank and the economic management changed, caused a decrease in the reserves due to the foreign exchange sales of the state banks. In the new period, the Central Bank will make foreign currency purchases in order to restore the reserves, without affecting the supply and demand balances in the market. In the period of January - December 2020, the current account balance gave a deficit of 36.7 billion USD, while net errors and omissions or capital movements of unknown origin showed a monthly inflow of 734 million USD, pointing to a net outflow of 3.28 billion USD throughout this year.
In 2020, the implementation of loose policies that led to the destabilization of TRY in general had an increasing effect on imports by increasing credit demand. In addition, the increase in gold imports throughout the year caused the current account deficit to widen in an environment where tourism revenues decreased significantly due to the pandemic. We can expect the current account deficit composition to be more positive in 2021. With the implementation of the tight monetary policy, limiting the loan growth will have a decreasing effect on the current account deficit. In addition, if epidemic control is achieved with vaccination, a better tourism season may provide some improvement in service revenues compared to last year. We expect us to be in a more positive position in terms of financing the current account deficit and in terms of the use of reserves within the framework of the new economy and the applications of the CBRT management. In 2021, the Central Bank will consider purchasing foreign currency in order to re-strengthen reserves and thereby tighten foreign exchange buffers.
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