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Financials

UPDATE 2-Turkey mulls tax relief to blunt coronavirus pain -sources

* Lira, stocks tumble as virus cases rise to 18

* Tourism, export sectors seen most vulnerable

* Debt repayments could be delayed, deferred -sources

* Fed easing opens door to sharper Turkish rate cut (Adds options cited by sources)

ANKARA, March 16 (Reuters) - Turkey is considering tax relief for businesses as one possible step to help the economy through a slowdown in the face of spreading coronavirus, two sources said on Monday, as stocks tumbled and the lira hit levels not seen since 2018.

Adjustments to tax regulations may be on the agenda as the government decides how to help companies and small businesses especially in the export and tourism sectors seen as vulnerable, said the sources, who are aware of the planning.

President Tayyip Erdogan is expected to outline steps later in the week. On Monday, as Turkey’s confirmed coronavirus cases rose to 18, the finance minister promised to support financial markets facing a liquidity crunch.

The spread of the virus threatens a global downturn and, for Turkey, the prospect of back-to-back shocks. A 2018 currency crisis has since sliced some 40% off the value of the lira and prompted a brief but sharp recession.

The economy recovered strongly toward the end of last year with the help of sharp interest-rate cuts and a big lending boost, both encouraged by Ankara, which before the virus emerged predicted an ambitious 5% growth rate this year.

The government has promised support for the tourism sector, and expectations have risen for broader fiscal and monetary support, including a larger-than-planned interest rate cut on Thursday.

“Some tax regulations may come on the agenda but a final decision has not been made,” said one of the two sources, who requested anonymity. The government will provide “serious support” to help businesses, the person added.

Debt repayments could also be delayed or deferred, said the two sources, adding the central bank and BDDK financial regulator are expected to take steps.

The Turkish lira weakened 1% against the U.S. dollar to 6.3970 after briefly hitting 6.4, its weakest level since September 2018. The main BIST 100 index plunged more than 7% to its lowest level since May.

RATE CUT

Last week, Turkey became the last big economy to officially report the outbreak and has since closed schools, bars and venues, and halted more flights.

The country is the world’s sixth-largest tourism destination but waves of travel restrictions and flight cancellations could pinch a sector that accounts for some 12% of the economy.

Turkish Airlines’ catering company, called THY DO&CO, slashed 700 jobs due to the slowdown, the Independent Turkish newspaper reported last week.

Turkish exporters meanwhile face slumping demand in Europe, their top market, which is reeling from the pandemic.

Finance Minister Berat Albayrak said measures will be taken to ensure markets have access to liquidity, adding support will be provided to all sectors of the economy beginning with those more affected.

The central bank is expected to cut rates by at least 50 points to 10.25% on Thursday, according to a Reuters poll that was mostly done before Sunday, when the U.S. Federal Reserve slashed rates to near zero to blunt the virus fallout.

Economists said the Fed’s move opens the door for Turkey’s central bank to ease policy by even more, despite the lira weakness that could keep inflation lofty via expensive imports. Consumer price inflation rose to 12.37% in February, and the currency is down 7.5% so far this year.

Separately, the bank has lowered the remuneration rate on required reserves to 6% from 8%, effective on March 20, two bankers with knowledge of the matter said on Monday.

Additional reporting by Ali Kucukgocmen and Nevzat Devranoglu; Writing by Jonathan Spicer; Editing by Ece Toksabay, William Maclean

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