FX.co ★ TCMB Maintains Gradual Lira Weakening

The Turkish lira continued its steady decline, reaching a new record low of 40.5 against the USD in late July, as the central bank assessed the appropriate measures to influence the currency's trajectory. In an effort to bolster government revenues and limit dollarization, the monetary authority increased the withholding tax on short-term lira deposits by 2.5 percentage points. This tax hike represents the latest implementation of capital controls, complementing the existing FX-protected deposits, which the government and central bank have coordinated to provide relief for the lira while policymakers work to stabilize the economic environment. Despite this, the Turkish Central Bank (TCMB) took advantage of softer inflation to enact a 300-basis point rate cut in July, surpassing the median market expectation of a 250-basis point reduction. This move aimed to lower real interest rates, which previously stood at over 10%, among the highest globally.