ISTANBUL Turkey's central bank raised its policy rate by a larger-than-expected 500 basis points to 40% on Thursday and said the pace of monetary tightening will slow down, with the tightening cycle to be completed in a short period of time.

"The Committee assessed that the current level of monetary tightness is significantly close to the level required to establish the disinflation course," the bank said following its monetary policy committee meeting.

In a Reuters poll, most economists predicted a 250 basis-point hike, while three forecast a 500-point hike. One predicted 300 basis points and another predicted 350. The bank has raised its one-week repo rate by 3,150 basis points since June, with 500-point hikes in the previous two months also.

"The pace of monetary tightening will slow down and the tightening cycle will be completed in a short period of time. The monetary tightness will be maintained as long as needed to ensure sustained price stability," the bank said.

The lira was firmer at 28.7750 against the dollar following the statement.

Inflation stood at an annual rate of 61.36% in October and is expected to rise into next year.

President Tayyip Erdogan chose former Wall Street banker Hafize Gaye Erkan as central bank chief after his May re-election. She has led a policy U-turn to relieve an economy strained by depleted FX reserves and surging inflation expectations.

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