The author is the president of Queen’s College of Cambridge University and an advisor to Allianz and Gramercy

Turkey tries to challenge the internal and external economic logic by repeatedly cutting interest rates chosen A new set of unorthodox measures will be introduced this week to stabilize its currency.

Whether the authorities are ultimately more successful this time boils down to a simple question: whether Turkish households and companies will view this “circuit breaker” as a bridge to more comprehensive measures to address potential drivers of economic and financial instability, or , On the contrary, as a destination that quickly proved to be inherently unstable?

By Monday afternoon, how chaotic the Turkish currency market has become is difficult to express in words. The exchange rate of the lira to the US dollar has fallen to more than 18 Turkish lira, and it has depreciated by half in just two months.

The rate of devaluation is accelerating, even though the central bank is intervening, so is the chaotic nature of transactions, further depleting its international reserves.

All of this has also led to an inflation rate of more than 20%, which is only a matter of time. More and more people choose to protect their savings by converting their lira deposits into U.S. dollars and other hard currencies (what economists call “dollarization”).

The direct reason for all this is that the domestic policy interest rate has been cut by 5 percentage points since September, when domestic and foreign conditions demanded a rate hike. Inflation has risen, currencies are under pressure, and global monetary policy conditions have begun to tighten, especially in the emerging world.

Desperate circuit breaker, the authorities chose a set this week Complex measures It is best to describe it as an interest rate equilibrium mechanism that ensures that the real value of lira deposits is maintained when measured in hard currency.

In addition to reducing the motivation for further dollarization, this approach seems to have generated three ancillary benefits to the Turkish authorities. First, it avoids the impact of partial and implicit interest rate hikes on other economies. Second, since the guarantee is applicable to deposits of 3-12 months, it is encouraged to extend the average duration of such deposits. Third, it helps to alleviate heavy and increasing inflationary pressures.

All of this is before the announcement, and according to most economic indicators, the currency is in the “overshoot” zone.

These advantages are accompanied by considerable risks. This mechanism puts the fiscal account/central bank facing a huge financing burden unless other measures are taken to control inflation and limit the renewed pressure on the currency to keep it away from dollarization. If this mechanism fails, it will further damage the credibility of decision makers, making it more difficult for the next set of measures to take effect quickly, even if they are comprehensive and appropriate.

There are still a large number of Turkish lira depositors who will decide the outcome within a few weeks. If they believe in policy responses and are not too worried about potential collateral damage, they will encourage others to buy their own and foreign currencies. The government can help this process by credibly showing that the latest measures are not an end in themselves, but a bridge to a more comprehensive policy.

This will include a clear interest rate hike by the central bank, which is still necessary at this point, but it is no longer sufficient. Turkey also needs to seek other internal support, such as tightening fiscal policy, and perhaps external support, such as reaching an agreement on the IMF program to provide funding and external verification.

All of this requires avoiding the understandable temptation of capital controls at the same time, which would undermine the historically powerful and still influential open growth model, which has taken advantage of Turkey’s many “competitive advantages” both economically and financially.

Through a series of new unorthodox measures, Turkey has won artificial stability for itself. Unless Turkish citizens are convinced that their currency crisis has truly passed, this is unlikely to translate into real stability.

This happens only when the government quickly shifts to a more comprehensive—and, yes, more orthodox—policy approach. Failure to do so will further weaken the country’s powerful economic attributes. After all, there are limits to constant violations of economic and financial laws.