The Turkish central bank on Thursday left its key policy rate, also known as the one-week repo rate, on hold, at 50%, for the third consecutive month in line with market expectations, citing recent indicators that confirmed domestic demand "continues to slow down."

"The decline in the underlying trend of monthly inflation registered a temporary pause in May. Recent indicators confirm that domestic demand, albeit still at inflationary levels, continues to slow down," the Central Bank of the Republic of Türkiye (CBRT) said in a statement.

The monetary authority thus further extended the pause, keeping the policy rate at 50% set in March when it surprised with a 500-basis-point hike just days ahead of local elections.

Economists from Türkiye as well as international analysts were expecting the bank to keep the rates on hold.

Inflation, the biggest challenge for authorities, reached an annual 75% in May, which is said to mark the peak before an anticipated fall in the second half of the year.

The CBRT said that in addition to the stickiness in services inflation, "inflation expectations, geopolitical risks and food prices keep inflationary pressures alive."

It reiterated that the committee "closely monitors the alignment of inflation expectations and pricing behavior with projections."

The committee statement also repeated that its policy will remain tight "until a significant and sustained decline in the underlying trend of monthly inflation" and that "policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen."

The Turkish currency was widely unchanged, trading at 32.87 versus the greenback shortly after the central bank's announcement.

"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. Consequently, disinflation will be established in the second half of the year," the central bank said.

"Liquidity conditions are closely monitored. Sterilization will be implemented effectively by also enriching the toolset whenever needed," it added.

Turkish officials earlier signaled that a downward trend in inflation may begin around June.

A survey by the central bank showed earlier this month that inflation expectations in Türkiye have fallen to their lowest level in a year, as the expectations for inflation 12 months from now fell to 31.8% in June, down from 33.2% in its previous survey of market participants.

"Indicators of inflation and underlying trend of inflation will be closely monitored, and the committee will decisively use all the tools at its disposal in line with its main objective of price stability," the central bank pledged.

President Recep Tayyip Erdoğan earlier on Wednesday acknowledged the challenges over the surging costs of living but reiterated his commitment to long-term economic stability over short-term populist measures.

"We are aware of the issues arising from the high cost of living, but we will address them by ensuring lasting prosperity, not through populist policies," he told his ruling Justice and Development Party’s (AK Party) parliamentary group meeting.

Separately, the government has also ruled out a mid-year hike to minimum wage, which the markets were watching to gauge its commitment to fighting inflation.

Rate cuts would probably remain off the table through much of the year, economists predict, with some penning the first cuts in the last quarter of the year.

Wall Street lenders like Bank of America Corp. anticipate the first cut closer to the end of this year, while Morgan Stanley pushed back its expectations of easing to the first quarter of 2025.

The central bank in a separate statement on Thursday said that the Monetary Policy Committee (MPC) meetings previously scheduled for July 25, 2024, and Aug. 22, 2024, have been rescheduled for July 23, 2024, and Aug. 20, 2024, respectively, as Governor Fatih Karahan, will be attending the G-20 Finance Ministers-Central Bank Governors Meeting and the Jackson Hole Economic Policy Symposium.