Turkey doubled a transaction tax on consumer loans as it took measures designed to steady the lira and rein in inflation of 73.5 percent, which is the highest in emerging markets and industrialised economies.
The bank and insurance transaction tax has been raised to 10 percent from 5 percent, the Turkish presidency said in the Official Gazette on Saturday.
Turkey’s government is attempting to halt a sell-off in the lira and stem price increases without raising interest rates. Last week, the authorities shortened repayment periods for consumer borrowing, increased the minimum amount of credit card debt consumers must repay monthly, and announced special bonds for retail investors linked to the income of state-run companies to encourage savings in liras.
The lira has lost almost a quarter of its value against the dollar this year after it declined by 44 percent in 2021. Last year’s lira sell-off threatened to turn into a full-blown financial crisis. In December, it forced the government to offer savers special lira deposit accounts with returns linked to the dollar exchange rate to stem currency weakness.
The Turkish economy will continue to grow in a sustainable way after the government introduced measures to support it, Treasury and Finance Minister Nureddin Nebati said at the weekend. Nebati said that the government would not collect some 239 billion liras ($14 billion) in taxes in 2022 as part of the fight against inflation, according to local media including the Hürriyet newspaper.
Nebati said inflation was a global problem and battling it remained a top priority for the government.
The central bank, acting on government orders, cut the benchmark interest rate to 14 percent from 19 percent late last year and has held it steady since then despite a surge in prices. Producer price inflation in the country stands at 132 percent. President Recep Tayyip Erdoğan, who has sacked three central bank governors in three years, opposes higher interest rates saying they are inflationary and contradict with his Islamic beliefs.
The lira was trading down 0.3 percent at 17.26 per dollar on Monday.