April sees sharp improvement in Turkey’s current account deficit
The desk interprets April's significant reduction in Turkey’s current account deficit as a pivotal development for the Turkish lira and broader market sentiment. Per the full note from ING, the monthly deficit reached $5.7 billion, indicating a drop in the twelve-month rolling figure from $39.7 billion to $37 billion, equating to about 2.4% of GDP. This shift primarily stemmed from decreased trade deficits, notably a reduction from $9.9 billion to $6.8 billion, driven by lower gold imports despite pressures from rising energy costs related to geopolitical tensions. With recent improvements in capital flows and $12 billion growth in official reserves, the outlook appears more positive for the Turkish economy, influencing the lira's trajectory against major currencies.
What the desk is arguing
The desk sees the narrowing of Turkey's current account deficit as a boon for the Turkish lira, poised to strengthen against its peers. This optimism is bolstered by a marked improvement in capital flows, reaching $19.2 billion in April following substantial outflows prior, as outlined in the ING commentary.
Furthermore, the core trade balance showed a positive trend as the negative trade balance significantly decreased, reflecting improved export conditions and reduced reliance on gold imports, crucial for stabilizing Turkey's economy. However, elevated energy costs remain a concern, driven primarily by the fallout from the US-Iran situation, which could temper any drastic improvements.
Where it sits in our coverage
Currently, our consensus target for USD/TRY stands at 1.075, with a range from 1.04 to 1.12. Specifically, JPMorgan is aligned with a target of 1.10 for March 2026, while BofA holds a contrary view, projecting a lower target of 1.04 for the same tenor.
This perspective aligns with recent market moves that reflect a careful optimism surrounding Turkey’s economic corrections and external funding support, bridging some divisions within firm expectations, with our outlook resting at the upper end of the spectrum.
How other firms see it
Market participants such as JPMorgan are aligned with our viewpoint, suggesting a recovery in the lira as it capitalizes on improving fundamentals. Contrarily, BofA suggests caution, maintaining a more pessimistic stance based on lingering geopolitical risks and inflationary pressures.
The interplay of USD/TRY dynamics will be crucial to monitor, especially against the backdrop of ongoing geopolitical tensions and shifting capital flows in and out of Turkey.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Turkey's current account deficit narrowed to $5.7 billion in April, down from $9.9 billion year-over-year.
- 02A significant increase in capital flows to $19.2 billion has positively influenced Turkey's official reserves, expanding them by $12 billion.
- 03The reduction in gold imports and improved trade balance are supporting a more stable economic outlook for Turkey.
- 04Energy price volatility due to geopolitical tensions remains a risk factor affecting the current account balance.
Market implications
Traders should monitor the USD/TRY exchange rate, particularly as it approaches levels around 1.075, our consensus target. Any significant developments in capital flows or further shifts in trade balance could catalyze additional movement, amplifying the lira's response to external economic signals.
Risks to this view
The main threat to the current bullish sentiment on the Turkish lira would be a resurgence of capital outflows or a sharp increase in commodity prices, especially energy, that could strain the current account further. Additionally, further geopolitical tensions or unexpected domestic economic policy shifts could thwart recovery efforts.
Older quick take Quick take 09:49 Turkey April sees sharp improvement in Turkey’s current account deficit The current account deficit broke its upward trend in April, while a marked improvement in the capital account helped lift official reserves Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Muhammet Mercan Chief Economist, Turkey The Turkish current account posted a deficit of US$5.7bn in April, higher than the market consensus and our call. However, given a large improvement in the monthly deficit over the previous year, the 12-month rolling figure dropped US$37bn or approximately 2.4% of GDP, from US$39.7bn a month ago. A closer look at the monthly figures shows that the deficit narrowed by roughly US$2.8bn compared to the same month of 2025, primarily due to a lower trade gap, which deteriorated from US$-9.9bn to US$-6.8bn.
This stemmed from an improvement in the core trade deficit and falling gold imports. The US-Iran war, on the other hand, which has pushed energy prices significantly higher, led to a deterioration in the energy trade balance compared to last year and limited the extent of narrowing in the current account deficit. Breakdown of the current account Source: CBT, ING "> Source: CBT, ING On the capital account side, with the announcement of a ceasefire in the Middle East war in early April, capital flows improved markedly to US$19.2bn, from record-high outflows in March.
With slight outflows from net errors and omissions of US$1.5bn, and considering the current account deficit, official reserves expanded by US$12.0bn. Further analysis reveals that resident activity led to inflows totalling US$1.9bn, primarily from the growing foreign deposits of local banks abroad, despite the continued acquisition of portfolio assets. Non-residents raised their Turkey exposure by increasing their portfolio investments by US$6.4bn and deposits held at local banks by US$4.2bn.
Additional net borrowing of US$5.4bn also contributed to foreign flows in April. In the breakdown of net borrowing, both banks and corporates secured long-term financing. This translates into long-term debt rollover ratios at 347% for corporations and 162% for banks on a monthly basis, compared to 224% and 150%, respectively, on a 12-month rolling basis.
On the corporate side, an acceleration in rollover rates since mid-2025 towards above 200% levels is worth noting. Breakdown of financing Source: CBT, ING "> Source: CBT, ING In the first four months, resident outflows rose slightly to US$10.2bn from US$9.6bn a year ago. Foreign inflows, on the other hand, recorded a jump, coming in at US$27.3bn, compared to a mere US$3.6bn in the same period of 2025.
As a result, the capital account has moved to the positive territory with US$17.0bn, compared to a US$-6.0bn. In addition, outflows via net errors and omissions remained elevated, totalling US$-17.7 bn vs US$-8.0bn in 2025. Taken together with the widening current account deficit, which grew from US$-22.6bn to US$-29.4 bn, official reserves were depleted by US$30.0bn vs a US$36.6bn fall recorded a year earlier.
Overall, the current account deficit in April ceased the widening trend, while recovering capital flows led to recovery in official reserves. Preliminary customs data from the Ministry of Trade suggest an improvement in the May current account, likely reflecting calendar effects. In the months ahead, the trajectory of the current account balance is expected to be influenced by a mix of external risks alongside domestic demand conditions.
In this regard, geopolitical shock increases the upside pressures on the current account deficit given elevated trajectory of oil and gas prices in addition to a potential decline in tourism revenues and a rise in gold imports. Sign of agreement between US and Iran on the other hand should be supportive with easing pressure in energy pressures. Turkey Reserves Current Account Capital account Balance of payments Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Older quick take
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