Turkey takes steps to curb high gold imports that weigh on finances
(Kitco News) In another step to address surging gold imports triggered by strong demand, Turkey called on local lenders to set a minimum spread on gold for domestic sales, Bloomberg reported.
The minimum spread referred to here is the difference between the asking price and the bidding prices. And the Turkish central bank asked lenders to set it at a minimum of 3%. This would impact only the lira-based gold sales, Bloomberg cited people familiar with the matter.
Before this, the spreads were set by lenders independently of the central bank. The Turkish central bank declined to comment.
Turkey saw a surge in gold demand last year as investors embraced the precious metal as a hedge against inflation, currency devaluation, and general uncertainty.
Gold imports accounted for $20.4 billion in 2022, which weighed heavily on the current-account balance. The gap in the current account in 2022 reached $48.8 billion for the full year — the largest since mid-2018, according to the data published on Monday.
"This was due to surging energy bills, gold imports swinging to a large deficit and strength in core imports (excluding gold and energy) amid demand management policies," ING's chief economist on Turkey Muhammet Mercan.
In January, Turkey imported $5.1 billion worth of gold, according to the country's trade minister Mehmet Mus.
And it was not just the retail consumers who stepped up gold purchases last year. Turkey's central bank was the biggest official buyer of gold in 2022. Turkey's official gold reserves rose by 148 tonnes to 542 tonnes, marking the highest level on record in 2022, according to the World Gold Council data.
In the fall, Turkey's inflation accelerated to 85% before slowing to 64% in December. Turkey's central bank was also one of the few that cut rates in 2022, taking the key interest rate from 14% to 9%.
Earlier this week, Turkey also decided to suspend some gold imports, according to another report by Bloomberg. This was meant to protect the economy following last week's devastating earthquakes. It still needs to be made clear how significant this curb on imports will be.
The issue of surging gold imports was even addressed by the country's President Recep Tayyip Erdogan two weeks ago, who said that Turkey is planning to keep increasing its gold production so it can rely less on imports.