When it comes to dealing with currency crises, most policymakers reach for the same tool first: an interest rate hike. Indeed, Argentina just increased its benchmark interest rate to an all-time-record 45% amid a slump in its peso.
In Turkey, however, the toolkit is unusual and varied. Among other things, it includes praying to God, intimidating social media users, and boycotting iPhones.
It does not include raising interest rates.
Facing the virtually uninterrupted tumble of the Turkish lira, the country’s official apparatus has jumped in.
The interior ministry is investigating hundreds of social media accounts for posting negatively about the currency. The Financial Crime Investigation Board is scrutinizing “people and institutions that spread fake news”. The Capital Markets Board has said it would seek legal action against those who make “erroneous and fabricated news and statements.” And the chief prosecutor of Istanbul opened an investigation into “persons who are involved in actions that threaten social peace, domestic calm and unity and confidence in the economy.” God, also, is apparently on their side.
President Recep Tayyip Erdogan said Turkey will boycott US electronic goods, including Apple iPhones. Encouraging Turkish businesses to produce competing products, he said he also will institute sanctions on American electronics. Last week, he told Turks to buy the Turkish Lira.
Meanwhile, Turkey’s central bank has remained steadfast. Interest rates, apparently, should be held at 17.75%—even though the lira plunged by 20% last week against the US dollar and hit yet another all-time low yesterday (Aug. 13). (It strengthened slightly today.)
The reasons are neither secret nor complicated. Erdogan, whose sway over the central bank has only increased since he was ushered into office with expanded powers in June, hates interest rates. “My belief is: Interest rates are the mother and father of all evil,” he said in May.