Turkey's lira crisis may be down to Erdogan's fundamental misunderstanding of how 'evil' interest rates work

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• The Turkish lira collapsed by over 35% in value versus the US dollar this year — a dramatic and sudden fall. 
• Yet the Turkish economy is growing strongly. 
• The trigger for the crisis may be investors' realisation that President Recep Tayyip Erdogan doesn't understand, or doesn't believe in, the role central banks play in setting interest rates that control inflation.
• Erdogan has called interest rates "evil" in the past, and it's an attitude that may be spooking markets.

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LONDON — Turkey's economy went from being rocky-but-fixable into a full-blown currency crisis today as the Turkish lira collapsed, losing more than 7% of its value against the US dollar on Friday, totaling a drop of over 35% since the same date last year. The crisis may potentially spread beyond Turkey, as Italy's already troubled banks are particularly exposed to the lira.

The immediate trigger for the decline was US President Trump's threat of sanctions against two senior Turkish ministers, in protest at the country's imprisonment of Andrew Brunson, an American Christian pastor jailed on accusations that he is linked to the Gulen movement, which opposes Turkey's current government.

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