Turkey's central bank left its key interest rate unchanged as high energy prices, driven by the war in Iran, continue to pose upside risks to inflation.

The bank held its benchmark one-week repo rate at 37.0%, it said Thursday. The bank last cut its key rate in January.

The Central Bank of Turkey said that while the underlying trend of inflation was decelerating, higher energy prices driven by the war in Iran continue to threaten the outlook for consumer price growth.

The rate of inflation fell in August, however the pace of decline slowed as the conflict kept upward pressure on prices.

"Slightly lower-than-expected August CPI data helped maintain a downtrend in the annual figure, though the pace of disinflation is quite slow," economists at ING said in a note.

"Uncertainty surrounding oil prices--along with their spillover effects on other commodity prices--continues to pose risks to the inflation outlook," they said.

In August, the central bank raised its 2026 inflation forecast to 28%, from 26%, while maintaining its 24% interim target.

Turkey imported around 71% of the energy it needed as of 2024, according to the International Energy Agency, making the country particularly exposed to rising oil and natural-gas prices.

Still, the central bank said domestic demand remains weak, with limited evidence of higher energy costs passing through to domestic prices.

Slowing economic growth could give the CBT room to cut rates in the near future, ING's economists said.

"We see the policy rate at 35% by the end of 2026 with two 100bp cuts in the last quarter," they said.

The CBT also maintained the overnight lending rate and the overnight borrowing rate at 40% and 35.5%, respectively.