Turkey yesterday raised tax on foreign currency deposits in a bid to prop up the tumbling lira, in a presidential decision published in the official gazette.
The withholding tax on foreign currency deposits of up to six months was raised from 18% to 20%, while tax on deposits of up to one year was hiked from 15% to 16%, under the decision that came into force yesterday.
Meanwhile tax on lira savings deposits of up to six months was brought down from 15% to 5%.
Tax on deposits of up to one year came down to 3% from 12%, and to zero from 10% on deposits of more than one year.
The news helped the lira rebound slightly following earlier losses, trading yesterday at 6.5 against the dollar and 7.6 against the euro.
The embattled lira had tumbled almost 5% in value on Thursday, trading at around 6.7% to the dollar, amid mounting concerns over the resignation of the deputy central bank governor.
The central bank has defied pressure to hike interest rates despite the lira crash and inflation that has surged to almost 16%.
Turkish media reported on Thursday that central bank deputy governor Erkan Kilimci was stepping down from the job he has held for the last two years to a new post at the Development Bank of Turkey.
Under the new rules, President Recep Tayyip Erdogan is due to choose a figure of his own as new deputy governor.
Kilimci was one of four deputies to governor Murat Cetinkaya who sit on the monetary policy committee that sets interest rates.
Analysts say a hike is needed to stop the lira crisis but Erdogan, who once called interest rates “tool of exploitation”, is opposed to any such move not to undermine growth.
The Turkish lira strengthened against the dollar yesterday as a cut in taxes on lira bank deposits helped rein in losses from a day earlier, when sources said the central bank’s deputy governor Erkan Kilimci was leaving.
Three sources told Reuters that Kilimci, also a rate-setter, was departing, two weeks before the bank’s monetary policy committee meets to address a slump in the lira, which has weakened 42% this year.
The currency firmed 1% to 6.5800 by 0730 GMT, rebounding strongly from an overnight low of 6.8994. Turkish markets were closed for a public holiday on Thursday, but the lira continued to trade offshore.
The currency found support from a decision announced in the Official Gazette to lower the level of withholding tax on lira bank deposits, while raising the level on foreign currency deposits of up to one year.
“It appears to be a step taken to make lira deposit usage more attractive and to make a move from forex to lira deposits ‘profitable’,” said TEB Investment/BNP Paris strategist Isik Okte.
“More actions will be taken by the authorities to reduce short-term USDTRY (dollar/lira) volatilities.”
The central bank and the banking watchdog have taken a series of measures to try to prop up the currency since its recent slide began, although it has not raised interest rates since early June.
The central bank was not available for comment on Thursday on Kilimci’s departure.
Kilimci is joining the board of the Development Bank of Turkey, according to a document from that bank.
“Kilimci had no disagreements with the central bank administration on any issues – including interest rates.
His expertise will be employed at another public position, that’s all,” a senior source told Reuters. The central bank has been under pressure from Erdogan not to increase interest rates, despite high inflation and the lira’s slide, which has fuelled concerns about Turkey’s economic outlook.
The main BIST 100 share index dipped 0.22% on Wednesday to 93,072 points.
Shares in state lender Halkbank rose 3.5% after it said it was launching a share buyback programme with a maximum amount of 450mn shares.