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Turkey Gold Exports Help Trade Deficit Narrow for 12th Month

Turkey’s trade deficit narrowed for a 12th month in October, as a slowing economy sapped demand for imports and Iranian demand for Turkish gold continued to push exports up.

The gap shrank to $5.5 billion from $8 billion a year earlier, the statistics office in Ankara said on its website today. It was expected at $7.5 billion, according to the median estimate of eight economists surveyed by Bloomberg. Imports fell 5.6 percent to $18.8 billion and exports rose 12 percent to $13.3 billion, helped by higher sales of precious metals.

“Re-balancing in economic activity continues” Inanc Sozer, an economist at Odea Bank AS, said in e-mailed comments from Istanbul. “After today’s figures both the current account deficit to GDP ratio and the inflation rate may ease to below 7 percent by 2012 year.”

Turkey’s trade gap narrowed from a record high as central bank Governor Erdem Basci tightened policy to curb a spending boom that helped make the country the third fastest-growing major economy last year after China and Argentina. In recent months he has reversed course, lowering borrowing costs to shore up growth, which slowed to 2.9 percent in the second quarter, the slowest pace since the 2009 recession.

Bond Yields Fall

Two-year benchmark Turkish bonds extended gains today after the trade figures were published. Yields fell 2 basis points, or 0.02 percentage point, to a record low of 5.96 percent at 1:40 p.m. in Istanbul. The yield has declined 112 basis points this month, the most among major emerging markets tracked by Bloomberg.

Imports shrank in October partly because businesses shut down for an Islamic religious holiday late in the month, and the narrowing of the deficit will end soon, according to Finansbank AS in Istanbul.

When that happens, “we expect external balance to gain more prominence in the monetary policy focus,” the bank said. The result will probably be a policy stance “characterized by low short-term interest rates and tight macro-prudential measures to lean against the appreciation pressures on the currency and excessive loan growth rates.”

Concern that Turkey would struggle to finance its current-account gap, which reached 10 percent of economic output, helped weaken the lira 18 percent against the dollar last year, the most among global currencies.

Rate Expectations

The lira has pared losses this year, adding about 5.4 percent. It was little changed today at 1.7855 per dollar.

The currency probably didn’t move because improvement in the external deficit was offset by expectations the central bank will cut rates in response to signs of weakness in the economy, Yarkin Cebeci, an economist at JP Morgan Chase Bank in Istanbul, said in e-mailed comments.

Turkey has diversified its exports away from crisis-hit Europe toward the Middle East. Gold exports to Iran and the United Arab Emirates, which has close commercial links with the Islamic Republic, have surged this year.

Turkey exported $14.3 billion in precious metals in the first 10 months, more than five times the year-earlier figure, with 90 percent going to Iran and the U.A.E. Imports of such goods were $7.7 billion in the same period.

Deputy Prime Minister Ali Babacan said on Nov. 22 that Iran, which is under international financial sanctions to curb its nuclear program, was buying Turkish gold with liras it obtained for gas sold to Turkey.

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