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The unorthodox theory behind Erdogan's monetary policy

Economists and investors are not buying the controversial economic theory invoked by Turkey’s president to justify low interest rates in the face of high inflation and the lira's collapse.

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.”

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