Turkey's central bank lowered its key interest rate ‍by a less-than-expected 100 ‍basis points to 37% on Thursday, citing firming inflation this month including expectations and ​pricing behaviour that threaten the overall disinflation process.

The cut to the one-week repo rate at the bank's first ⁠policy meeting of the year marked its fifth consecutive easing move since last summer.

In a Reuters Poll, the ⁠median estimate ‌was for 150 basis points - the same size cut as in December - though a couple of economists had predicted a smaller decrease in the benchmark rate given that ⁠disinflation is expected to slow in coming months.

"While showing signs of improvement, inflation expectations and pricing behaviour continue to pose risks to the disinflation process," the central bank's policy committee said after the decision.

"While leading indicators suggest that monthly consumer inflation has firmed in January, led by food ⁠prices, the rise in the underlying trend ​of inflation is limited," it said, adding that demand conditions toward the end of 2025 supported disinflation at a "moderating pace". Consumer prices ‍rose 30.9% year-on-year in December, with a 0.89% monthly increase, with both readings below expectations and helped by easing food ​prices. But given a series of new-year price updates and a 27% rise in the minimum wage for 2026, inflation readings beginning in January are expected to be volatile.

After a brief policy reversal early last year due to political turmoil, Turkey's rate-cutting cycle resumed in July with a 300-basis-point move, followed by cuts of 250 points and then 100 in October amid rising food prices, before the last two cuts of 150 in December then 100 points this week.

The central bank has eased by 900 basis points since last summer, and by 1,300 points since 2024 when it had held rates ⁠at 50% for most of that year to wrestle down ‌inflation expectations.

The poll conducted last week suggested the central bank will continue easing, bringing its policy rate to 28% by the end of this year.

The bank has pledged to reach its 16% interim inflation target ‌by end-2026, ⁠and projects a range between 13% and 19% - even as markets are sceptical and predict higher year-end readings.

(Reporting by ⁠Ezgi Erkoyun and Ece Toksabay; Editing by Jonathan Spicer and Daren Butler)