The Turkish government has been working on measures to lower interest rates by reducing Treasury's borrowing requirement and the new model is expected to be announced by the President Tayyip Erdogan in a fortnight, the Hurriyet daily and other local media reported.

Erdogan, a self-declared enemy of high interest rates, has repeatedly warned the central bank to lower rates, arguing that high rates cause inflation.

"The move we see this morning can be partly attributable to news reports in local media that the government is working on measures to reduce interest rates," said Inan Demir, an economist from Nomura International.

The lira briefly touched 4.0271 against the US dollar, not far off the record low of 4.0375 touched two weeks ago.

"Given the market's concern about over-heating in the Turkish economy, a pronounced reluctance to implement counter-cyclical measures, and showing a willingness to reduce interest rates further and strengthen credit growth, is adding to market concerns about Turkey's imbalances," Demir said.

In its policy-setting meeting last month, Turkey's central bank left key interest rates unchanged. Its reluctance to tighten interest rates has raised investor concerns that policy is less than independent.

Investors, who have also been worried about the impact of double-digit inflation, are also looking ahead to current account data, due to be released later this month.