May 11 2018

Turkey manipulating petrol prices ahead of election

Turkey’s government is keeping petrol prices artificially low ahead of snap presidential and parliamentary elections on June 24, according to Uğur Gürses, a columnist for Hürriyet newspaper.

The government appears to have persuaded regulators, who are supposed to be autonomous, to stop employing an automatic pricing mechanism for fuel at the pump. But while the move may help inflation in the short term and hence the government’s chances in the polls, it will have to be abandoned sooner or later, leading to a sudden spike in the costs, Gürses said.

Oil prices have jumped 10.7 percent since the end of March in dollar terms, and the lira has also dropped 7.4 percent against the U.S. currency. But petrol prices in Turkey have only risen 1.5 percent and diesel 4.5 percent, Gürses said.

Turkish President Recep Tayyip Erdoğan organized a hasty meeting with economy officials this week after the lira slid to a record low against the dollar. Since then, state-run Ziraat Bank and Halkbank have cut interest rates on mortgages to less than 1 percent monthly, below the rate at which they collect deposits from customers, meaning they are making a loss on the lending.

After the meeting, the government stated that it will take measures to rein in inflation but wouldn't interfere with free market mechanisms.

Meanwhile, Turkey’s central bank is refusing or unable to use the main tool at its disposal to deal with inflation – interest rate hikes, Gürses said.