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23
VAKIFBANK ANNUAL REPORT 2013
again at the end of the year. In addition,
the lagging effects of foreign exchange rate
developments were seen in the last quarter
of the year. Consequently, 2013 year-end
inflation stood at 7.40%.
In 2014, food price movements and foreign
exchange rate developments are the two key
factors to consider in terms of inflation. In
the first quarter of the year, tax adjustments,
the lagging effects of December’s exchange
rate movements and cost-driven price
developments may create upward pressure on
inflation. However, a revision in food prices,
which was high throughout 2013, can also be
expected. In addition, measures taken by the
BRSA regarding personal loans may stabilize
domestic demand and therefore, reduce
demand-driven inflationary pressures.
Foreign trade and current account deficit
In 2013, domestic and international
developments continued to have a positive
impact on the trade deficit. In particular,
the Federal Reserve’s decision to change its
expansionary monetary policy at its December
meeting and the market expectations prior
to this meeting had a significant impact on
the trade deficit through foreign exchange
channels. The effect of rising exchange rates
in 2013, the recovery in exports by means of
diversification, such as the increasing share of
exports to African countries in total exports,
had a positive impact on the trade deficit.
Although the third quarter growth rate, above
expectations at 4.4% since aggregate demand
was pulled forward by upward pressure on
foreign exchange rates, points to recovering
economic activity if CBT’s reassurance of its
tightening monetary policy position in the last
quarter would result in decreasing economic
activity, domestic demand could also support
the foreign trade deficit. Moderate growth
in oil prices and normalizing gold imports in
particular since May 2013, restricted pressure
on the import side.
Current account
The current account deficit, 6.1% of gross
domestic product (GDP) at US$ 47.8 billion
in 2012, stood at US$ 65 billion in 2013.
Regarding developments in the 2013 current
account deficit, the revisions by TURKSTAT of
the domestic and foreign demand balance
and tourism revenue seems to have made
positive contributions to the current account
balance. Since the funding side of the balance
of payments account, the increase in capital
inflows to developing countries, resulting
from the Fed’s expansionary monetary policy,
played an important role in foreign exchange
inflows until May. However, as a result of
weakening capital inflows to developing
countries and the uncertainty in domestic
markets with the expectations regarding the
Fed’s monetary policy change in the third
quarter of the year, and then the Fed’s policy
change in December, the recovery in the
current account deficit lost some momentum.
In line with these developments, we expect
the current account deficit to GDP ratio will be
over 8% by 2013 year-end and around 5% in
2014.
CBT increased tight monetary policies
Following a policy that oversees price and
financial stability, the Central Bank of Turkey
continued to use interest rate and primary
monetary policy tools together in 2013.
Considering the strong capital inflows, rapid
credit growth and appreciation of the Turkish
lira, the CBT applied a moderate tightening
policy until June 2013, by maintaining
low interest rates and increasing reserve
requirement ratios and reserve option
coefficients (ROC) concurrently. The CBT
decreased the policy interest rate from 5.50%
in December 2012 to 4.50%; the overnight
borrowing rate, the lower band of the interest
rate corridor was reduced to 3.50% - a total
reduction of 150 basis points. The overnight
lending interest rate, the upper band of the
interest rate corridor, rose to 6.50% with
a cut of 250 basis points in total; gradually
current account deficit
2005
2006
2007
2008
2009
2010
2011
2012
2013*
80
12
60
10
8
40
6
20
2
4
0
0
Source: CBRT, TSI
* 2013 Estimated
Current Account Deficit (% GDP, right axis)
Current Account Deficit (annual, billion $)