The lira traded at 4.4770 against the dollar by 1345 GMT, firming from Wednesday's close at 4.5560. It has dropped about 15 percent this year but has recovered from a record low of 4.9290 hit on May 23.

The central bank's rate hike to 17.75 percent followed May's 3 percentage point tightening after inflation spiked.

The cost of insuring exposure to Turkey's sovereign debt also fell. Five-year credit default swaps narrowed by 10 basis points (bps) from Wednesday's close to 268 bps - their lowest level in a week and the steepest daily decline in a fortnight, data from IHS Markit showed.

Worries about President Tayyip Erdogan's influence over monetary policy after the June 24 presidential and parliamentary elections have driven losses in the lira.

In a Reuters poll, eleven out of 16 economists predicted the bank would hike its one-week repo rate - the benchmark adopted by the central bank in May - with five each forecasting increases of 50 and 100 bps.

One economist predicted an increase of 75 bps and a further five forecasted no change.

The compound yield on the benchmark 10-year bond fell to 15.01 percent from 15.22 percent.

The main BIST 100 share index rose 1.4 percent to 98,000 points.