Published: Sun, September 16, 2018
Business | By Eloise Houston

Turkey rules property sales, rental agreements must be in lira

Turkey rules property sales, rental agreements must be in lira

President Recep Tayyip Erdogan had preceded the lender's announcement with a speech that slammed interest rates - a frequent bugbear of his - briefly spurring speculation that the bank would not move to arrest the slide of the currency and prevent the potential spread of Turkey's currency woes to other emerging economies.

The lira collapsed against the dollar last month amid concerns about Erdogan's growing control over monetary policy in Turkey and a dispute with the United States that led to sanctions. That compares with an average of $400 million a week in net selling since the start of this year.

Meanwhile, Turkish Finance Minister Berat Albayrak said earlier this month in an interview that the Turkish Central Bank has independent government and will take all necessary measures to fight inflation.

However, speaking to Middle East Eye, Julian Walker, a director at Spot Blue, a UK-based company that specialises in property in Turkey, said: "I don't think this move will be bad for business".

Weekly holdings reported by the Central Bank of Turkey fell by nearly a fifth since June 15 to 15.5 million ounces with the lion's share - US$3.3 billion - of the exodus sparked by the monetary authority's Aug 13 move to lower reserve requirements.

The development comes after reports last month that the lira had tumbled, dropping to a record low amid a diplomatic and trade row with Washington.

The lira was 3 per cent lower at 6.5377 per dollar at 12:41 pm in Istanbul, after touching 6.5574.

Analysts have called for Turkey to hike its key interest rate by as much as 10% to combat inflation, which is running at 16%. While there was wide expectation that interest rates would rise on Thursday, veteran emerging-markets investor Mark Mobius raised doubts about the benefits of such a move.

Anthony Skinner, director of Middle East and North Africa at Verisk Maplecroft, said his base scenario was for a hike of 200-300 basis points and predicted the bank would fall short of appeasing those who wanted a hike of 500 basis points. What's more, the initial reaction to the increase from local investors shows the currency still faces an uphill struggle.

According to the decree, all sales and rental contracts agreed in foreign currency will be converted to Turkish lira.

"This became once the coolest decision", commented Timothy Ash, senior rising markets strategist at Bluebay Asset Administration. The rate hike could pinch growth more, but independent experts say it's needed to contain inflation of around 18 percent and support the currency. Many of his government's own contracts, including for building motorways and operating airports, are now priced in dollars or euros. The government has yet to clarify the new rules.

It's common in Turkey, a country that's long struggled to contain inflation, to index prices in dollars or euros for everything from cars to legal services.

The bank's decision was announced hours after Erdogan triggered tumult by repeating his hostility to higher borrowing costs and issuing an order that limited the use of foreign currency in domestic transactions.

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