Turkish Lira Plunges, Minister Sees More Currency Converted to Lira

Turkish lira banknotes are seen in this illustration in Istanbul, Turkey, August 14, 2018. REUTERS/Murad Sezer/Illustration

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ISTANBUL, Jan 24 (Reuters) – The lira was slightly weaker on Monday after Turkey’s finance minister said he expected some $10 billion in foreign currency bank deposits to be converted into liras due to a new law exempting these deposits from corporation tax.

Sources also quoted Finance Minister Nureddin Nebati as saying he expected inflation to reach around 40% in the coming months, which is lower than most estimates, and that no rise in interest rates was not expected by the central bank.

At 05:42 GMT, the lira was trading at 13.49, weakening 0.15% from Friday’s close at 13.4695. It fell 44% last year after the central bank cut policy by 500 basis points to 14% since September, but stabilized this month.

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Nebati met with economists on Saturday and gave a presentation on the Turkish economic model which he said aims to solve the current account deficit problem, overcome the middle income trap and move Turkey up the global value chain. .

In a statement, his ministry also quoted Nebati as saying that the project bank would be accelerated and the value added tax would be simplified.

Turkey’s parliament last week approved a law under which lira deposits converted from forex under a currency support program will be exempt from corporation tax on gains resulting from the conversion. Read more

Companies have about $90 billion in foreign currency bank deposits, according to central bank data.

According to attendees of Saturday’s meeting, Nebati said lira deposits under the program reached 184 billion lira ($13.7 billion) as of Jan. 21, while lira currency conversions at the as a result of the corporate tax change could reach as much as $20 billion based on Treasury estimates.

The deposit scheme, announced by President Tayyip Erdogan in December, compensates depositors for any loss in value of the lira incurred during the term of the deposit.

According to four participants, Nebati told the meeting that the most important priority would be to reduce inflation, which jumped to 36% in December. Read more

Economists see inflation reaching 50% in the first half. However, Nebati said he did not expect such a rise, but that inflation could reach around 40% in the next three months, before then falling sharply, potentially below 30% by the end of the year.

Nebati reiterated that inflation would drop to single digits by the time of elections scheduled for mid-2023. Read more

Participants also quoted him as saying that there would be no turning back from the current central bank monetary policy and that no one should expect rate hikes, adding that the importance of the policy rate had diminished.

($1 = 13.4251 lira)

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Reporting by Nevzat Devranoglu Writing by Daren Butler Editing by Jonathan Spicer

Our standards: The Thomson Reuters Trust Principles.

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