Turkish lira gains against dollar after tax cut on deposits

ANKARA - The Turkish lira strengthened against the dollar on Friday 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.

Sources said 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 percent this year.

The currency firmed 1 percent 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. President Tayyip Erdogan will appoint his replacement.

"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 said.

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 percent on Wednesday to 93,072 points.

Shares in state lender Halkbank rose 3.5 percent after it said it was launching a share buyback programme with a maximum amount of 450 million shares.