Turkey raised natural gas and electricity prices by 9.8 percent from Monday in line with rising global energy costs, state officials announced, a move that will help support public finances but will also increase inflation pressure.
The price hikes were signalled last week by Prime Minister Tayyip Erdogan who said prices would be raised by between 10-15 percent in early October, a further step to try and curb a widening budget deficit.
The yield on Turkey’s new two-year benchmark bond edged up to 7.60 percent in early over-the-counter trade after the announcement on Monday, from 7.56 percent late on Friday.
Turkey was Europe’s fastest-growing economy last year with an 8.5 percent expansion, but growth has slowed sharply this year, to 2.9 percent in the second quarter,
and tax revenues are falling short of targets, leading to a widening deficit.
Deputy Prime Minister Ali Babacan said last month that the government would miss its budget deficit target of 1.5 percent of national output this year by 1 percentage point.
Officials had said more belt tightening measures were planned after announcing tax hikes last month on cars, fuel and alcohol, expected to add 8.5-9 billion lira ($4.7-$5 billion) to government revenues annually.
While bonds reacted negatively to the utility price hike on Monday, analysts said the increase had mostly been factored into asset prices.
“Natural gas/electricity price increases would further pressure inflation upwards and industrial margins downwards so the market impact would be negative, while it is already priced in,” Tera Brokers said in a research note.
Officials from the energy market watchdog EPDK said electricity prices for households were raised 9.81 percent as of Oct. 1. Industrial power prices rose 4.03 percent and office electricity prices climbed 8.06 percent, they said.
Natural gas consumer prices were raised 9.8 percent, the state energy company Botas announced overnight.
Turkey’s annual inflation rate fell to 8.88 percent in August from above 11 percent in April but is still well above the central bank’s 5 percent target for 2012 and 2013.‑Reuters