Turkey posted a current account surplus of USD 127m in August against aforecast deficit of USD 100m. The July surplus was revised to USD 220m from USD 286m. The trade deficit widened to USD 3.5bn from USD 2.3bn but this was offset by a higher surplus in services (USD 4.0bn vs USD 2.9bn in July). The financial account posted a surplus of USD 3.7bn on the back of solid surpluses in FDI and portfolio investment. YTD, the C/A deficit amounts to USD 6.6bn compared to USD 34.9bn in Jan-Aug-08, which underlines that the external deficit does not pose a threat to Turkey's economy at the moment.
The capacity utilization rate increased to 70.1% in September from 69.7% in August. The market consensus expected a rate of 72.6%. Utilization in the private sector remained below 70% (69.9%), mainly owing to low utilization ratios in oil refining (65.2%) and car manufacturing (62.3%). That said, utilization is traditionally low in August and we expect it to tick higher in the coming months.
August current account and September capacity utilization rate lend support to the case for cutting interest rates at the upcoming MPC meeting on 15 October. We reiterate our call for a 50bp rate cut on Thursday. TRY strengthened to 1.4591 from 1.4615 vs USD, signalling positive market response.