(Bloomberg) -- Turkey narrowed its current-account deficit last year after a sharp policy reversal started to cool off domestic demand in the almost $1 trillion economy by aggressively raising interest rates.

Balance-of-payments data published on Tuesday showed the gap in the current account, the broadest measure of trade and investment, shrank to $45.2 billion for the full year, from $49.1 billion in 2022. 

Though improving since May with four months of surpluses or near-zero deficits, the current account deteriorated at the end of 2023 largely as a result of a higher energy bill. The shortfall in December was $2.1 billion, according to the figures published by the central bank, less than forecast by economists surveyed by Bloomberg.

The deep deficit reflects the challenges still facing Turkish policymakers in steering an economy long hobbled by trade imbalances. The central bank has more than quintupled its key rate to 45% and said in January it’s ending an eight-month long cycle started after presidential elections in May.

Turkey’s U-turn looks intact despite this month’s sudden departure of Hafize Gaye Erkan as central bank governor. Her replacement by Fatih Karahan, a member of the rate-setting committee with more than a decade of experience as a professional economist in the US, maintained continuity on a team championing more orthodox policies. 

Speaking last week, Karahan credited tighter monetary policy for contributing to the improvement of the current account.

The new governor, who kept the door open for further rate hikes if needed, expected the current account deficit to fall to 4% of gross domestic product by the end of 2023 from 5.3% in 2022. Turkey aims to reduce the ratio to 3.1% in 2024, according to the government’s medium-term program published in September.

--With assistance from Joel Rinneby and Taylan Bilgic.

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