Turkey hikes tax on forex deposits to prop up lira

16:09 | 31/08/2018

Turkey on Friday (Aug 31) raised tax on foreign currency deposits in a bid to prop up the tumbling lira, in a presidential decision published in the official gazette.

turkey hikes tax on forex deposits to prop up lira
The lira has lost nearly 45 percent of its value against the dollar since the beginning of this year AFP/Yasin AKGUL

The withholding tax on foreign currency deposits of up to six months was raised from 18 to 20 per cent, while tax on deposits of up to one year was hiked from 15 to 16 per cent, under the decision that came into force on Friday.

Meanwhile tax on lira savings deposits of up to six months was brought down from 15 to 5 per cent.

Tax on deposits of up to one year came down to 3 from 12 per cent, and to zero from 10 per cent on deposits of more than one year.

The news helped the lira rebound slightly following earlier losses, trading Friday at 6.5 against the dollar and 7.6 against the euro.

The embattled lira had tumbled almost 5 per cent 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 per cent.

Turkish media reported Thursday that deputy 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.

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