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Recently, President Erdogan sacked the head of Turkey’s central bank because he didn't want to cut interest rates. He even said: “We said that if rates fall, inflation will fall. He didn’t do what was necessary.”
From my understanding of economics, this is the opposite of how things work. If we want to lower inflation, we should raise interest rates even further. So why President Erdogan is conviced of the opposite?
It appears that Erdogan's opposition to interest rates is moral instead of economic. He has previously said:
"My belief is that interest rates are the mother of all evils. Interest rates are the cause of inflation. Inflation is a result, not a cause. We need to push down interest rates... If my people say ‘continue on this path’ in the election, I say I will emerge victorious in the fight against this curse of interest rates. We must bring down the interest rates... We are not interested in Turkey’s enemies, who are hiding behind currency rate speculators, the interest rate lobby, or credit rating agencies. These are not our concern."
It seems unlikely that he is speaking figuratively given his ideology. One must understand that Erdogan's Justice and Development party is Islamist. That is to say they believe the only legitimate basis for any society is Islam. Islam has explicit prohibitions on lending money with interest. Most Christians shared this belief for centuries too, and the contrast with Jews who do not have such prohibitions is the origin of many slurs against 'money-lending' Jews.
Because of this, we have to conclude that Erdogan's stance is unlikely rooted in any economic ideas, and is instead because of his religious beliefs. If the president's understanding of reality is essentially faith-based, then under his leadership we should expect a push towards zero interest rates. This would also explain why he believes slashing interest rates would have payoff.
The expat Turkish site Ahval offers the following commentary:
Erdogan’s theories on the relationship between inflation and interest rates may come partly from his experience in business. Before entering politics as mayor of Istanbul in 1994, Erdogan used to run a food company.
Turkish CEOs tend to borrow heavily to cover their operating expenses. When interest rates are rising, it creates uncertainty and higher costs, which companies then pass on to their customers in the form of price hikes. When interest rates are falling, firms are more willing to reduce prices because their own expenses are declining and their financial outlook becomes rosier.
We don't know if Erdogan really thinks this way, but at least it is an alternative explanation to pure Islamic commitment to low interests. The source also claims:
While few economists agree with Erdoğan’s stance on rates, neo-Fisherites – who use arguments put forward by Yale University economist Irving Fischer – advocate real interest rates as a tool to control inflation. The theory goes that if a central bank brings down nominal interest rates and keeps them there, then inflation will inevitably move down toward that level. Should a bank raise nominal rates and keep them high, then eventually inflation will accelerate.
A quick google search finds that "neo-Fischersim" really exists and does advocate just that, although it seems to have few (in any) actual academics behind. It's unclear if Erdogan has even heard of it though... (There is even an article in The Economist [linked from the previous source], which debunks neo-Fischersim.)
Erdogan's economic thinking aside, since Turkey had eneterd a recession in the last two quarters of last year, which eventually brought down inflation in the first half of this year, even Financial Times agreed that their central bank should have cut interest rates at some point.
