Turkey's central bank left interest rates unchanged on Thursday, amid fears that the raging war in the Middle East and rising energy prices could abort the fragile path of curbing inflation in the country.

The Monetary Policy Committee, chaired by Governor Fatih Karahan, decided to keep the one-week repo rate at 37 percent for the fourth consecutive meeting, in line with the expectations of all 20 analysts surveyed by Bloomberg.

The committee also kept the overnight rate, the effective lending rate adopted since the outbreak of war with Iran late last February, at 40 percent.

The decision to hold rates comes as Brent crude prices exceeded the $98 per barrel threshold since the beginning of this month, due to escalating military operations in the region. These fluctuations impose sharp upward pressures on inflation rates in Turkey, as one of the major energy-importing countries in the region.

Despite these pressures, inflation in Turkey saw a slight slowdown of about half a percentage point, registering 32.1 percent in June, the first decline in the rate since the start of the regional conflict.

The Turkish central bank had begun, before the outbreak of war, a gradual retreat from one of the tightest monetary tightening cycles among emerging markets; it gradually reduced the main interest rate from 50 percent last year as inflation receded from its peak, but the regional conflict forced the bank to halt the reduction operations temporarily.

Although no official increase in interest rates was approved, the monetary authority has undertaken indirect tightening of monetary policy since last March, by suspending one-week repo auctions and replacing them with financing via the higher-cost overnight rate.

According to the latest survey conducted by the central bank, economists expect inflation to fall to just under 30 percent by the end of the year, leaving very limited room for the possibility of cutting interest rates during the remainder of this year.