AFP Tourists stand in a queue outside a luxury brand Louis Vuitton store next to a digital billboard giving updates on various currencies and the Turkish stock exchange in Istanbul. Image Credit: AFP

ISTANBUL: Turkey doubled tariffs on some U.S. imports including cars, beverages and tobacco on Wednesday in retaliation for U.S. moves, but the lira rallied a further six percent after a fresh move by banking authorities to underpin the currency.

over Turkey’s detention of a pastor and other diplomatic issues, which have helped to send the lira tumbling to record lows against the dollar.

The rebound in the Turkish currency to stronger than 6.0 against the dollar was driven by a banking watchdog’s step to limit swap transactions and by hopes of improved relations with the European Union.

Last Friday, U.S. President Donald Trump said he had authorised higher tariffs on aluminium and steel imports from Turkey.

A decree signed by President Tayyip Erdogan, doubled Turkish tariffs on passenger cars to 120 percent, on drinks to 140 percent and on leaf tobacco to 60 percent. Tariffs were also doubled on goods such as cosmetics, rice and coal.

“The import duties were increased on some products, under the principle of reciprocity, in response to the U.S.

administration’s deliberate attacks on our economy,” Vice President Fuat Oktay wrote on Twitter.

The United States was the fourth largest source of imports to Turkey last year, accounting for $12 billion of imports, according to IMF statistics. Turkey’s exports to the United States last year amounted to $8.7 billion, making it Turkey’s fifth-largest export market.

The row with Washington has helped to drive the lira to record lows, with the currency losing more than 40 percent of its value against the dollar this year, prompting central bank liquidity moves to support it.

The lira firmed as far as 5.75 against the dollar on Wednesday and stood at 5.9350 at 0745 GMT in a move initially triggered by a Turkish court decision to release two Greek soldiers facing espionage charges.

A treasury desk trader at one bank said this “development showed relations with the EU could recover while tense relations continue with the USA”.

It was also helped by a step from the banking watchdog BDDK, cutting the limit for Turkish banks’ forex swap, spot and forward transactions with foreign banks to 25 per cent of a bank’s equity.

The lira had already rebounded about 8 per cent on Tuesday on news of a planned conference call on Thursday in which the finance minister will seek to reassure international investors.

Markets have been concerned by Erdogan’s influence over the economy and his resistance to interest rate increases to tackle double-digit inflation.

Erdogan has said Turkey is the target of an economic war, and has made repeated calls for Turks to sell their dollars and euros to shore up the currency. On Tuesday, he said Turkey would boycott US electronic products.