Turkish lira gains as president cuts taxes on lira deposits

Turkey’s lira strengthened on Wednesday after the government announced a cut in taxes on lira bank deposits.

The lira rose 0.3 percent to 7.79 per dollar in Istanbul. It fell to a record low of 7.85 per dollar on Tuesday.

A withholding tax charged on interest earnings on lira deposits of more than one year was reduced to zero from a previous 10 percent, President Recep Tayyip Erdoğan said in a decision published in the Official Gazette on Wednesday.

A charge on deposits of between six months and one year was cut to 3 percent from 12 percent and on deposits of up to six months to 5 percent from 15 percent. Taxes on foreign currency deposits remained unchanged.

The tax had reduced returns for Turkish deposit holders, encouraging them to switch out of the lira and buy foreign currencies such as the dollar and euro to protect savings.

The state-run Anadolu news agency said the tax cuts were designed to protect the value of the lira.

Higher taxes on deposits were among an array of measures taken by the government this year to encourage consumers to spend and help spur economic growth, leading to concerns among investors for economic stability. The steps have also included a splurge in lending by state-run banks and have led to a sharp increase in the country’s current account deficit as demand for imports rose.

A separate tax on purchases of foreign currency was reduced to 0.2 percent from 1 percent.

Turkey's central bank raised its benchmark interest rate by 2 percentage points to 10.25 percent last week to help defend the lira and contain inflation, which is running at 11.8 percent annually.