Turkey has rolled back some restrictions on the use of foreign currencies that were brought in at the height of an economic crisis this year, according to a decree published yesterday, loosening the rules after lobbying from the hotel industry.
In September the government ruled that property sales, rental contracts and leases should all be made in lira, a move President Tayyip Erdogan said would support the currency.
Foreign currency had been widely used for rental deals in shopping malls and also used in real estate sales contracts.
After plunging to a record low of 7.24% against the dollar in August, the lira has been able to mount a quiet recovery.
Still, it remains some 30% weaker against the dollar this year, and economists remain concerned about the continued impact on the economy.
Under the new regulations published in the government’s Official Gazette yesterday, foreign residents will be able to make real estate contracts in foreign currencies.
Foreign currencies will also be allowed for rental agreements for tourist accommodation facilities and in duty-free zone stores.
The Hotel Association of Turkey had made efforts to keep the sector’s ability to do deals in foreign currency and contacted the tourism ministry regarding the issue, its head, Timur Bayindir, said in a recent speech.
It was not immediately clear how much of the sector’s facilities are contracted in foreign currencies.
Last month the government announced other exemptions to the ban on using foreign currencies in business agreements, including export-related contracts, capital market instruments and employment contracts involving foreigners.
Meanwhile, Turkish industrial production fell 2.7% year-on-year in September, official data showed yesterday, its biggest drop in at least seven years and heightening expectations that the economy is set for a recession.
Turkey, once seen as a star emerging market, has been battered this year by a sell-off in the lira that has sent inflation soaring to 25%, hitting the outlook for growth and sparking concern about the impact on banks.
Aggressive rate hikes by the central bank and an improvement in ties with the United States, as well as government moves to tighten spending, have all helped underpin the currency in recent months.
Still, it appears a recession is imminent.
Industrial output — which measures the production of sectors such as manufacturing — fell a calendar-adjusted 2.7% year-on-year in September, data from the Turkish Statistical Institute showed.
That was worse than the 2% decline forecast in a poll of eight analysts by Reuters.
“The weaker-than-expected Turkish industrial production data for September add to the evidence that the economy is entering a deep recession,” Jason Tuvey of Capital Economics said in a note to clients.
“There was pronounced weakness in sectors that produce big-ticket items, such as furniture and electrical products, which is probably a sign that the sharp rise in inflation and weak confidence is causing consumers to hold off from large purchases.”
Turkey’s economy is expected to contract 1.4% in the fourth quarter of this year and officially enter a recession — defined as two consecutive quarters of negative growth — in the first three months of 2019, with a 2.1% contraction, a Reuters poll showed last month.
President Erdogan, a self-described “enemy of interest rates”, has repeatedly called for the central bank to lower borrowing costs, to help spur growth. His comments have undermined investor confidence and sparked the sell-off.
The central bank kept rates on hold at 24% at its last meeting, in October.
Month-on-month, industrial production was also down 2.7% in September on a calendar and seasonally adjusted basis, the data showed.
Industrial output in the third quarter was up 1.5% year-on-year.
The lira was at 5.3475 to the dollar at 0828 GMT yesterday, little changed from the previous session’s close
Residential apartment blocks line a city highway in Ankara. Under the new regulations published in the government’s Official Gazette yesterday, foreign residents will be able to make real estate contracts in foreign currencies.