(Bloomberg) -- Turkey’s central bank kept interest rates unchanged, pausing a month after surprising markets with a big hike and delivering additional tightening since then.

The Monetary Policy Committee led by Governor Fatih Karahan left the one-week repo rate at 50% on Thursday. All but two economists surveyed by Bloomberg correctly predicted the decision, while the rest saw an increase.

The lira pared gains after the announcement and traded 0.2% stronger against the dollar as of 3:14 p.m. in Istanbul.

“Considering the lagged effects of the monetary tightening, the Committee decided to keep the policy rate unchanged, but reiterated that it remains highly attentive to inflation risks,” the central bank said in a statement. The MPC said that monetary policy will remain tight “until a significant and sustained decline in the underlying trend of monthly inflation.”

Policymakers have recently been extending costlier liquidity to banks than implied by their benchmark and have room to push the price of funding even higher without needing to raise rates yet. The flexibility of a wider rate corridor opened the way for the central bank skip a hike for only the second time since starting its aggressive tightening campaign last June. 

The break from rate increases can last for months, with any easing later in the year contingent on inflation slowing from a peak level of over 70% expected in May. Karahan has pledged to do “whatever it takes” to curb price growth that remains under pressure from still-brisk consumer spending. 

Repeating its guidance from March, the MPC said on Thursday that its “monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen.”

The central bank “keeps saying the right things,” said Henrik Gullberg, macro strategist at Coex Partners Ltd. in London.

But “actual inflation is still accelerating, so markets would want to see a favorable trend in spot inflation too — with the central bank staying put — in order to start believing in the bank’s inflation-fighting credentials,” he said.

What Bloomberg Economics Says...

“Turkey’s central bank left interest rates on hold at its April meeting, but we still expect borrowing costs to rise. This won’t happen through a higher benchmark repo rate, though. Instead, it will come from restricting access to this window and forcing lenders seeking liquidity to pay a higher price. The central bank is also likely to tighten credit growth and regulations.”

— Ziad Daoud and Selva Bahar Baziki. Click here to read more.

A central bank survey published last week found expectations for end-year inflation are still well above its own forecast of 36%, which Karahan will update in early May.

“The central bank restored a big chunk of its credibility, but many market watchers would most likely agree that Turkish policymakers led by Governor Karahan should not be in a hurry to start cutting interest rates,” said Piotr Matys, a foreign exchange analyst at InTouch Capital. 

“It’s better to be very patient and start cutting well into 2025,” he said, adding that easing “may well start” at the end of this year.

--With assistance from Joel Rinneby.

(Updates with central bank comment in seventh paragraph.)

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