The Central Bank of Republic of Turkey (CBT) will hold its sixth MPC meeting ofthe year on Thursday, September 14. We believe the Bank will stay put againdespite recent TRY strength.    CBT’s effective rate has converged to 12% since early May. In the July meeting,CBT retained its commitment to keep monetary conditions tight until a visibleimprovement in the inflation outlook arrives. Downward momentum prevailingin annual headline over preceding two months reversed in August. Negativebase and continued FX pass-through were both influential while sticky servicesinflation, lagged wage-cost pressure, and an output gap which has already closed- if not turning positive - also played a role. Core indicators were bleak, too.    Momentum-wise, both B and C indices worsened to over 10% after havingreached levels around 6% just two months ago. 2yr CPI expectations meanwhilegot stuck at their all-time high (7.93%), which is nearly 1pp above the CBT's upperuncertainty band.    Latest high-frequency production indicators were still robust, as manifestedin strong PMI and IP prints during Q3. A variety of indicators on retailpurchases, such as house, vehicle and white goods, however displayed amixed picture. Notwithstanding the marked downward correction in commercialcredit, consumer loan growth remained robust around 20%WoW during August,hence still providing support to private consumption. Base effects are also fairlyaccommodative in Q3. All-in, growth looks set to remain resilient in Q3, if notstronger.    An interesting dichotomy between commercial and consumer loan rates hasemerged recently. While the latter accelerated by nearly 200bps since end-Q2,the former declined by 100bps until mid August. Interim utilization of the CreditGuarantee Fund and subsequent decline in loan extension have probably playeda role while the sustained rise in consumer loan rates probably reflects improveddemand conditions.    Residents bought USD3.2bn during the second half of August and their FXdeposits reached USD160.6bn (after adjusting for EURUSD moves). Localsalready bought USD5.2bn in cumulative terms since early August, and currentstock levels are just USD2bn shy of all-time high, pointing to upward pressure onthe dollarization ratio.

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