Everytime there is currency volatility , central banks raise the interest rates to support the local currency and make interest rates attractive enough for foreign money to flow in and take advantage of the higher interest rates.So if Argentina raised the rates to 60% last week or Turkey raises the rates, it should support Argentina Peso or Turkish lira right?The chart below introduces a new angle to this equation which most central Bankers refuses to acknowledge.
The strength or weakness of any currency does not depend on higher interest rates beyond a level. It is actually the confidence in the economy and the currency . There is a very thin line where this confidence is lost and money just flees inspite of raising rates and in my view the confidence is actually a function of political stability ,free and transparent institutions.