We spent two days earlier in the week in Ankara and Istanbul, meeting with theCentral Bank of Turkey (CBT), the Ministers in charge of economy management,politicians, local banks, economists, political analysts, and internationalorganizations. We returned with three key take-aways:1. Sustaining a competitive economic (5%) and employment growth rate isthe top priority for authorities. Keeping inflation under control is however notoverlooked. Yet, the aim is not to hit the 5% target (or the 7% upper uncertaintyband) any time soon, but to ensure a return to (high) single-digit levels in thecoming period. There is no fiscal consolidation in sight but there are no plans tointensify level of fiscal stimulus next year either. The Credit Guarantee Fund (CGF)is currently on hold but it has become a secular part of policymakers' toolkit, tobe called upon when and if necessary under different formats.    2. CBT now defines its 'forward guidance' as 'tight for longer'. This is dueto recent acceleration in headline/core inflation, a likely upward shift in CPIprojections, output gap finally turning positive in Q3 (to the tune of 1% of GDP)and rising likelihood of a less accommodative global backdrop ahead.    We view this minor recalibration as strategic positioning by the MPC topreemptively manage fledgling market expectations for a 'tighter stance' againstthe forthcoming decline in ex-post real policy rates. This could mean the CBT isagain opting for the easier (or cheaper) option, as they had done earlier in theyear by using the late liquidity window and extensive liquidity management todefend price/financial stability rather than an outright shift in (currently obsolete)one-week repo rate.    Still, a less tight monetary stance than optimally required is consistent withthe authorities' aim to keep growth close to 5% levels accompanied by a nonexpeditedreturn to high single-digit inflation levels, taking advantage of favorablebase effects ahead.    We still expect steady policy rates across the board and no major relief in liquidityconditions, pointing to the effective rate remaining close to current levels (12%)in the coming months. We continue to believe next direction in policy rates willbe downwards given possibility of growth losing momentum in quarterly termsin Q4 2017 and Q1 2018 and ex-post real policy rates exceeding 250bps in bymid-Q1 next year.

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