The Turkish central bank extended the rate pause into the eighth month as it decided to keep the one-week repo policy rate on hold at 50% on Thursday, citing the risks to the disinflation process stemming from inflation expectations and pricing behavior.

The bank said it remained "highly attentive" to inflation risks but suggested that "the level of the policy rate will be determined in a way to ensure the tightness required by the projected disinflation path," ahead of potential easing in the coming months.

"The level of the policy rate will be determined in a way to ensure the tightness required by the projected disinflation path, taking into account both realized and expected inflation," the Central Bank of the Republic of Türkiye (CBRT) said after its Monetary Policy Committee (MPC) meeting.

"The committee reiterated that it remains highly attentive to inflation risks. Monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen," it added.

The lira firmed slightly to 34.5250 against the dollar after the announcement but remained weaker on the day.

The last time the bank raised its policy rate was in March when it hiked by 500 basis points to round off a long tightening cycle that started in June last year to rein in elevated inflation.

Since then it has kept the one-week repo rate on hold.

In a change of messaging in September, it began setting the stage for a rate cut by dropping a reference to potential further tightening, but it has continued to voice caution on inflation.

"The underlying trend of inflation registered a decline in October. Indicators for the last quarter suggest that domestic demand continues to slow down, reaching disinflationary levels," the bank said Thursday.

"While core goods inflation remains low, signs of an improvement in services inflation have become more apparent. Unprocessed food inflation remains elevated due to temporary supply conditions," it added.

"While inflation expectations and pricing behavior tend to improve, they continue to pose risks to the disinflation process."

In October, inflation was slightly higher than markets expected, dipping to 48.58% annually, while registering a 2.88% month-over-month increase. Still, it regressed significantly compared to around 75.5% in May, falling to the lowest levels since last summer.

The officials expect the trend to continue in the upcoming period.

A recent Reuters poll showed the bank was expected to hold rates steady in November, with a rate cut seen in December or January.

Several other polls also anticipated the bank to keep the rates constant at the meeting this month, taking into consideration inflation rates in the last two months.

Earlier this month, the central bank raised its year-end inflation forecasts for this year and next to 44% and 21% respectively, vowing to keep policy tight to ensure disinflation continues.

Disinflation process

"The decisiveness regarding the tight monetary stance will bring down the underlying trend of monthly inflation through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations," the CBRT said following its MPC decision.

"Increased coordination of fiscal policy will also contribute significantly to this process. Consequently, the disinflation process will gain strength," it added.

"The tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range."

The central bank hiked rates by 4,150 basis points between June last year and March, as part of a major shift in monetary policy.

The expectations for policy easing raised in recent weeks with some business associations suggesting they expected a first move by the central bank in December.

Analysts, however, pin the expectations on the start of next year and the first quarter.

Capital Economics' economist Nicholas Farr said today's statement did offer some hints that an easing cycle may be getting a bit closer. The disinflation process will slow over the coming months and interest rates won't arrive until the end of the first quarter at the earliest, the economist said.

The upcoming minimum wage hike for the next year is also seen as a significant determinant for the inflation path in 2025.

Official negotiations on the amount of increase are expected in the coming weeks. The minimum salaries have been lifted by 49% at the start of this year, with authorities skipping the mid-year hike unlike in the case of a year earlier.

President Recep Tayyip Erdoğan was quoted as saying on Wednesday on the return from a summit in Brazil to reiterate the goal to lower the inflation to single digits while pledging "not (to) let any segment of society be crushed by inflation."

"Inflation has entered a permanent downward trend, and hopefully it will continue this way," he said.