Although international observers have come to decry Turkey’s slide into authoritarianism under President Recep Tayyip Erdogan, they have also tended to treat his rule as a boon to the economy based on the assumption that he is ultimately a pragmatist who guarantees more stability than the alternatives. For example, when the June 2015 election delivered a hung parliament and raised the specter of political deadlock, markets went into a tailspin and remained volatile until November, when snap elections returned a majority for Erdogan's Justice and Development Party.

In a similar vein, when Erdogan announced early elections this April, following months of worrisome economic news, the lira and the Borsa Istanbul rallied on the hopes that his anticipated victory would relieve pressure to pursue growth at all costs and foreshorten the period of dubious policies and pricey populist handouts that typically precede Turkish elections. More than anything, however, investors hoped that Erdogan would stop hounding the central bank to hold down interest rates, which he has repeatedly denounced as the “mother of all evil.”

No one expected Erdogan to suddenly convert to Friedmanian monetarism, but many hoped the prospect of victory would produce concessionary rate hikes to combat inflation, shore up the lira and slow down an economy that has been dangerously overheated by the policy of wanton stimulus he has pushed since the 2016 failed coup attempt. After Erdogan’s May 13-15 official visit to the United Kingdom, such hopes evaporated, as did the sentiment that he is ultimately a pragmatist. Until then, his theory that high interest rates increase inflation — rather than reduce it, as economic orthodoxy would have it — could be dismissed as political posturing aimed at a domestic audience of pious Muslims receptive to the notion (even if they do not entirely subscribe to it) that usury is a sin and should be resisted.

Although Erdogan avoided combative and derogatory rhetoric in London, he did not substantively alter his position on the matter. In a televised interview with Bloomberg and at a private meeting with institutional investors, he reaffirmed his position on interest rates and avowed to oppose them. Moreover, he declared that after the election, he intends to take de facto control over monetary policy, the central bank’s nominal independence notwithstanding. Within hours, the lira hit a record low, and benchmark 10-year bond yields hit a record high. Both trends have since only worsened.