The Turkish central bank intervened directly in foreign exchange markets for the first time in two years on Thursday, with "aggressive" dollar sales to prop up the ailing local currency.
The lira has been tumbling to record lows almost daily this year, pummelled by an escalating political crisis and concerns about the economy.
But it failed to stem the slide, with the lira hitting new lows of 3.1437 to the euro and 2.2970 to the dollar in late trade.
The currency has lost about 10 percent since mid-December in turmoil not seen since the 2000-2001 financial meltdown.
At the World Economic Forum in Davos, Deputy Prime Minister Ali Babacan insisted that the negative economic impact of the volatility was limited.
"The central bank is doing what it can to deal with the current situation," said Babacan, adding the government did not intend to change its growth and inflation forecasts.
The central bank said in a statement it was intervening with direct foreign-exchange sales because of "unhealthy price developments".
Bankers estimated it had spent in excess of $2 billion, perhaps much more, to prop up the currency as it neared the key threshold of 2.3 to the dollar.
Ali Cakiroglu, senior investment strategist at HSBC in Turkey, said it was an "aggressive intervention.
"However, it is only a temporary measure," he warned. "Because the market needs motivation. This could be done either by increasing additional tightening days, or explicitly raising interbank rates to nine percent".
The central bank has so far refrained from hiking interest rates to defend the lira, with the government reluctant to jeopardise its growth and inflation targets.
But there are concerns that the political crisis, sparked by a corruption scandal embroiling members of Prime Minister Recep Tayyip Erdogan's inner circle, will continue to damage investor sentiment.
"Turkey is damaging itself with such a blinding quarrel," the head of Turkey's top business association Muharrem Yilmaz said.
He was referring to a seething feud between Erdogan and an erstwhile ally, exiled Turkish preacher Fethullah Gulen, who the premier accuses of creating a "parallel" state to try to topple his government.
"We are worried about how groups outside politics are impacting politics," Yilmaz added.
'Forex intervention not sustainable'
Turkey, like other emerging markets, is also vulnerable to US Federal Reserve plans to taper its monetary stimulus as it reduces access to cheaper funds to cover its account deficit, currently at over 7.0 percent of gross domestic product.
It was the first time since January 2012 that the central bank has intervened by dealing directly with banks to sell dollars from its foreign exchange reserves rather than holding auctions.
Gokce Celik, economist at Istanbul's Finansbank, warned however that such actions were unlikely to be sustainable.
"(The central bank) will need to deliver tightening via a substantial 'proper' rate hike, probably not immediately but eventually, if they are to reverse the depreciation," he said.
His view was echoed by UBS economist Reinhard Cluse, who said that with foreign exchange reserves at $37 billion before Thursday's action, "the market's suspect that the CBT's firepower is insufficient to sustain prolonged (forex) intervention".
At its highly-anticipated monthly policy meeting on Tuesday, the bank held its key overnight rate at 7.75 percent despite expectations from some in the market for a rise.
However, it gave itself room for manoeuvre, saying it would raise interbank rates to nine percent on "exceptional" monetary tightening days.
Analysts are forecasting a further slide in the lira because of the political tensions and tepid economic growth, with some suggesting a level of 2.35 to the dollar over 12 months.
The government has insisted that its growth target of four percent for this year remains intact but the European Bank for Reconstruction and Development on Tuesday cut its forecast to 3.3 percent.