The Turkish central bank extended its interest rate pause into the sixth month, keeping on Thursday its one-week repo auction rate constant at 50%, as expected but reiterated that it remained highly attentive to inflation risks.

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

Since then it has kept the one-week repo rate on hold while pledging to tighten further if the outlook worsens. On Thursday, it slightly shifted its wording, moving from the pledge to tighten further if needed and said: "Monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen."

In previous statements, it had said its policy stance would be tightened if such a deterioration in inflation is foreseen.

The annual inflation rate dropped to below 52% in August from the peak seen in May, with expectations for a downward trend to persist in the coming months in the face of the tightening drive.

Recent polls suggested that the bank would opt for keeping the rate intact this month, while a Reuters poll showed analysts expect the bank to make its first rate cut around November. Some analysts and financial institutions see such a move could come in December or even start of the next year.

"When all indicators pertinent to monthly inflation are jointly analyzed, its underlying trend is assessed to have displayed no discernible change in August," the Central Bank of the Republic of Türkiye (CBRT) said after its committee meeting.

"Indicators for the third quarter confirm that domestic demand continues to slow down with a diminishing inflationary impact," it added.

While it suggested that the core goods inflation "remains low despite a slight uptick," the central bank indicated that "the improvement in services inflation is expected to occur in the last quarter."

It, however, said that the committee noted that inflation expectations and pricing behavior "continue to pose risks to the disinflation process."

"The committee decided to keep the policy rate unchanged but reiterated that it remains highly attentive to inflation risks," the bank also said, citing that "decisiveness regarding 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 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 CBRT said.

"Monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen."

It also added that in case of unanticipated developments in credit and deposit markets, the monetary transmission mechanism would be supported via additional macroprudential measures.

"Liquidity conditions are assessed with respect to prospective developments and closely monitored. Sterilization tools will continue to be implemented effectively," it added.

The lira was little changed at 34.02 against the dollar after the decision.

The bank has hiked its main rate by a total of 4,150 basis points from last June through March, after a turnaround in the economic policies.

The bank forecasts inflation to slow to 38% at the end of this year and 14% next, projecting it to decline further to 9% by the end of 2026.

The government's updated medium-term economic program forecasts see inflation falling to 41.5% by year-end.