Turkey hikes gas and power prices by as much as 14 percent as lira crisis deepens

Erdogan casts the lira’s slide as an economic attack on Turkey by Western governments, financiers and ratings agencies. AFP / Vyacheslav OSELEDKO

ANKARA: Turkey raised natural gas prices over the weekend by as much as 14 percent, two sources said, while the energy regulator announced a similar increase in electricity costs as a deepening currency crisis stokes inflation. The lira has fallen 42 percent against the dollar this year, hit by concerns about President Recep Tayyip Erdogan’s grip on monetary policy and a worsening rift with the United States over a detained American Christian pastor.

The sell-off has increased the cost of food and petrol and raised fears about the impact on the country’s wider economy and banks. Economists are particularly worried about the central bank’s inability to rein in inflation, which hit a 14-year high of nearly 16 percent in July.

State pipeline operator Botas raised natural gas prices by 14 percent for industrial use and 9 percent for residential use effective from Saturday, two sources told Reuters. Officials for Botas were not immediately available to comment.

Last month, Botas increased the price of natural gas for electricity production by 50 percent and by 9 percent for residential use. Turkey is dependent on imports for almost all of its energy needs. The lira crisis has driven up the cost, in local currency terms, of oil and gas.

Likewise, Turkey’s energy regulator said it would raise electricity prices by 14 percent for industrial use and 9 percent for households from Saturday. It increased prices by the same amount last month.

Almost a third of Turkey’s total 293 billion megawatt power production came from natural gas power plants in 2017.

Retail prices in Istanbul, Turkey’s biggest city, surged 2.23 percent month-on-month in August, for a year-on-year increase of 14.99 percent, the Istanbul Chamber of Commerce said Saturday.

Official August inflation data is due Monday, and economists expect another hefty reading.

“This will provide the first hard evidence of the impact of the lira’s collapse this month on the wider economy,” Jason Tuvey of Capital Economics said in a note to clients Friday.

The latest hikes in electricity and gas prices will directly increase inflation by 35 basis points, according to Reuters calculations.

Erdogan, self-described “enemy of interest rates,” wants to see lower borrowing costs to keep credit flowing, particularly to the construction sector. Investors, who see the economy heading for a hard landing, say decisive interest rate hikes are needed to put the brakes on inflation.

Erdogan, who has appointed his son-in-law Berat Albayrak as finance minister, casts the lira’s slide as an economic attack on Turkey by Western governments, financiers and ratings agencies. He says high interest rates cause inflation – a stance at odds with orthodox economics.

“We see little chance that an ugly set of inflation figures will change the government’s – and, crucially, President Erdogan’s – stance on interest rates,” Tuvey said.

A version of this article appeared in the print edition of The Daily Star on September 03, 2018, on page 4.




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