ISTANBUL: Turkey's lira firmed on Friday thanks to narrower-than-expected trade deficit in July and news that the economic management team in Prime Minister Ahmet Davutoglu's first cabinet will remain unchanged. 7 In July, the trade deficit was $6.46 billion, below a Reuters poll forecast of $7.41 billion.
Exports rose 2.6 percent to $13.4 billion and imports fell 13.5 percent to $19.9 billion, data from the Turkish Statistics Institute said. In the first seven months of the year, the trade deficit fell 24 percent to $46.07 billion.
"Decrease in the foreign trade deficit is important as it indicates the declining path in current account deficit is to continue," a note from Odeabank said, cautioning: "Weakness in the imports highlights the weakness in domestic demand".
Turkey's current account deficit is financed by foreign capital inflows, making it especially vulnerable to global liquidity conditions.
Eliminating this weakness in the economy has been a major policy objective for the ruling AK Party.
Among key sectors, automotive imports tumbled 23.8 percent in July while electrical machinery exports dropped 10 percent.
Exports to Iraq, which was the second biggest importer of Turkish goods and services before Islamist militants seized a third of the country in a bid to carve out a hub for jihadism, plunged 45 percent in July compared to a year ago.
The lira firmed to 2.1536 against the dollar after the trade data before settling at 2.1625 by 1045 GMT, firmer than the 2.1647 registered late on Thursday.
One analyst said the slight weakening was due to investors buying the dollar in risk-averse positioning ahead of the weekend.
"Ahead of a weekend in which geopolitical risks may well increase and the release of US ISM and Turkey CPI next week, investors may be choosing to take risk-averse positions by closing long lira positions," said Odeabannk strategist Erkan Dernek.
"And as the new cabinet has already been declared, there is not any positive news left to drive the lira firmer today."
As expected, Davutoglu decided to keep Finance Minister Mehmet Simsek, Deputy Prime Minister Ali Babacan, Economy minister Nihat Zeybekci and Energy Minister Taner Yidiz in their current posts, meaning the key economic management team will remain the same. Before the announcement, analysts said that markets sought continuity and no change in the economic team was priced in.
Istanbul's main share index was up 0.74 percent at 81,432 points, outperforming a 0.04 percent fall in the broader emerging markets index.
The benchmark 10-year government bond yield fell to 9.13 percent from 9.19 percent on Thursday.
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