The Turkish lira gained to its strongest level against the dollar this month amid speculation that the central bank will increase interest rates on Thursday to stem double-digit inflation.

The currency rose to touch 6.3673 per dollar, the highest since Aug. 29. The lira has traded in a narrow range since Monday after the central bank last week signaled potential action to stem consumer-price growth that has accelerated to the fastest in 15 years.

The lira has lost more than 40 per cent of its value this year amid a diplomatic spat with the U.S. and signs of an overheating economy. The depreciation has fueled higher import costs, contributing to an inflation rate that is more than three times the central bank’s target, and many investors are calling for a large increase in borrowing costs to put an end to the rout.

“It seems expectations are building that they will hike significantly tomorrow,” said Henrik Gullberg, an emerging-market strategist at Nomura International Plc in London. “Some of that is being reflected ahead of the decision.”

The lira was trading 0.7 per cent stronger at 6.3847 per greenback as of 12:43 p.m. Istanbul time. It advanced 2.2 per cent last week after policy makers said their monetary stance “will be adjusted” at the Sept. 13 decision “in view of the latest developments.”

The central bank has already increased borrowing costs since its last meeting in July -- when it unexpectedly left policy unchanged -- by tightening liquidity and forcing banks to borrow from a more expensive overnight rate. The weighted cost of funding as of Tuesday was 19.25 percent and the median forecast in a Bloomberg survey is for a 325-basis-point hike in the one-week repo rate to 21 per cent on Thursday.