Hard (or heavy) land ng to frontload rate cuts?

Sequent al growth looks set to turn negat ve (-0.5 percent QOQ), as s gnaled by the consecut ve quarterly decl ne seen n ndustr al product on n Q3. Cred t turned deeply negat ve dur ng the quarter as banks stopped lend ng follow ng the August currency cr s s and ts adverse sp llover on the strength of counterparty balance sheets. Reta l sales also sl pped nto negat ve terr tory, as households halted spend ng due to negat ve conf dence and lower real purchas ng power n USD terms. F scal mpulse was also negat ve dur ng the quarter as the government had used ts ammun t on last year before the dual elect ons n June 2018. Meanwh le, net exports look set to make a marked pos t ve contr but on, as already conf rmed by rap d mprovement n the current account def c t, thanks to r s ng exports aga nst a mater al plunge seen n mports. Base effects are also unsupport ve th s t me. We expect the Turk sh growth rate to decelerate to 1.8 percent YOY n Q3 ( n unadjusted terms) after 5.2 percent n Q2 2018. A techn cal recess on looms ahead based on h gh-frequency nd cators’ performance n October and November, and f we are r ght n our expectat on for a sequent al contract on that already started n Q3. The latest MPC meet ng and the accompany ng M nutes underl ned that rate-setters are nherently concerned about the extent of a hard land ng. A sooner than expected decl ne n headl ne and core CPI m ght prompt them to jo n forces w th the government to re nv gorate demand cond t ons vaasl ghtly less t ght stance, depend ng on evolut on of headl ne nflat on ahead, open ng the door for monetary eas ng sooner than expected. Notw thstand ng the marked retreat n TRY and money market rates and hard land ng cond t ons n the economy, the December MPC meet ng s too early to expect a move by the CBRT due to elevated nflat on expectat ons and for f nanc al stab l ty reasons. (December 7)