By Ceyda Caglayan and Humeyra Pamuk
ISTANBUL (Reuters) - Turkey ruled on Thursday that property sales, rental contracts and leasing transactions must be made in lira from now on, halting the use of foreign currencies for such deals in a fresh step to support the ailing local currency.
All business deals inside the country should be conducted in lira, President Tayyip Erdogan said, adding that nobody apart from exporters and importers should cross paths with foreign currency.
"We are solving the issue of rent in foreign currency, which concerns a lot of our vendors, once and for all," Erdogan told a meeting of a traders' confederation. "Every business in this country needs to be priced, discussed and carried out with our own currency," he said, adding that further moves to support the lira were on the way.
But economists and industry participants doubted the move would have a permanent positive impact, saying it hampered predictability and was likely to bring additional burdens for firms with foreign currency debt.
Real estate sales and rental deals in foreign currency are common in Turkey, particularly in the retail sector.
"Around 70 percent of the rental contracts in shopping malls are in foreign currency," Hulusi Belgu, chairman of the council of shopping centres told Reuters. "There is tremendous uncertainty right now. What further regulation will follow after this decision is important."
Turkey's shopping mall industry has more than $15 billion of debt which firms could struggle to repay if they are unable to generate foreign currency revenues, Belgu said, adding that such decisions may spook foreign investors who account for about $17 billion of a total $58 billion invested in shopping malls.
In a decision published on Thursday in the Official Gazette, the government said any contracts previously made in foreign currency but which are currently in effect must be converted into lira within 30 days.
The decision also covers contracts for business and services. Contracts cannot be agreed in foreign currency or indexed to a foreign currency.
It stood at 6.4550 against the dollar at 1012 GMT, weakening sharply from Wednesday's close after Erdogan said high inflation was a result of the central bank's wrong steps.
"The decision did not say what level should be taken for the new contracts, neither identifies what price index will be used for future price hikes, paving the way for potential disputes between the sides (of a contract)" said Cem Baslevent, economics professor at Istanbul Bilgi University.
"Such hasty decisions would not have a positive impact on the Turkey perception of foreigners either," he added.
In a series of steps to cushion the fall of lira, Turkey has limited derivative transactions, lowered leverage ratios in trading, and required Turkish exporters to convert the bulk of their overseas revenue into lira.
While the moves have put a floor under the lira, many analysts have criticized what they say are unconventional measures to support the lira and the Turkish central bank's reluctance to hike interest rates decisively.
Erdogan, a self-styled "an enemy of interest rates", has cast the lira crisis as an "economic war" targeting Turkey and has repeatedly urged Turks to sell their dollar savings to shore up the lira.
On Thursday, he repeated his call for lower rates.
Central bank policymakers meet later on Thursday and are expected to raise interest rates -- which are currently less than inflation -- to support the lira. According to a Reuters poll, the benchmark rate is expected to be hiked by 225-725 basis points.
The interest rate decision will be announced at 1100 GMT.
(Writing by Daren Butler and Humeyra Pamuk; Editing by Catherine Evans)