Moodys: CA deficit is key risk to Turkey.

By bne IntelliNews March 8, 2011
In a credit opinion note Moodys says that the rapid deterioration in the current account deficit is a key risk factor in Turkey at the moment. The rating agency argues that since there are important structural elements, the CA deficit will not disappear quickly therefore shorter-term strategies to mitigate this risk become important. These could include a tighter fiscal stance, improved productivity and competitiveness and the accumulation of more foreign exchange reserves, the note reads. The countrys rating could come under downward pressure if the large CA deficit becomes more difficult to finance, Moodys asserts. Moodys estimates a CA deficit at 6.5% of GDP in 2010 and forecasts a deficit of 7.2% of GDP this year. The note underlines that the timing, speed, and magnitude of future policy rate increases will be important as a failure to respond quickly enough would damage the central banks inflation-fighting credentials, which would be credit negative for the sovereign as it would increase balance of payments risks.

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