(Bloomberg) -- The Turkish lira extended losses as traders said state banks had withdrawn their support ahead of Thursday’s central bank interest rate meeting.

The currency fell as much as 2.5% and was trading at 26.92 per dollar as of 5:01 p.m. in Istanbul, down 2.3% on the day. The lira has lost 31% of its value this year, the biggest depreciation among emerging-market peers after the Argentinian peso.

Turkey’s Monetary Policy Committee is expected to raise its policy rate for a second consecutive month on Thursday, to 18.5% from 15%, according to the median estimate in a Bloomberg survey. Most economists say that policy remains too loose given year-end inflation forecasts remain at more than 40%.

Market concerns over another underwhelming rate increase — following a smaller than expected tightening in June — have been taking their toll on the lira, said Piotr Matys, a senior currency analyst at In Touch Capital Markets Ltd. Paradoxically, the central bank may have to “seriously consider” a large rate hike after the lira plunged to yet another record low, which will have inflationary consequences, he said.

TURKEY PREVIEW: Central Bank to Continue Pivot With Smaller Hike

State-run banks, which have frequently sold dollars to support the lira in periods of weakness, have not been doing so recently, according to traders who asked not to be named, citing policy. The state lenders don’t announce or comment on their interventions in currency markets.

(Updates with latest markets and analyst comments from the second paragraph.)

©2023 Bloomberg L.P.