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The lira has come under renewed pressure over concerns about Turkey's balance of payments, its ability to service its foreign debt and calls from President Tayyip Erdogan for its central bank to cut interest rates.
As liquidity in the lira improved, the London overnight swap rate plunged to 50% from a crippling 1,200% a day earlier, Refinitiv Eikon data showed.
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It had stood at 24% last week. "We made it clear that this process would not continue for long. It was a step against a speculative attack and it has ended. We do not expect a new speculative attack," the official told Reuters.
But the lira weakened as far as 5.6465 per dollar from 5.33 on Wednesday.
Last year, it plunged almost 30% against the dollar. As of 1105 GMT, it had clawed back some of its losses to 5.5950.
Sources had previously said lira liquidity would be squeezed until after Sunday's local elections. Rabobank emerging market forex strategist Piotr Matys said the market was braced for a volatile week for the currency after local elections on Sunday.
He said it was critical that Finance Minister Berat Albayrak "acts decisively and announces a comprehensive package of reforms with full details to preserve what has been left from Turkey's severely damaged credibility."
"His remarks since the lira crisis last year imply that he is fully aware of what investors expect from him. It is time to deliver," he said.
Erdogan said on Thursday that the recent volatility in the lira stemmed from currency attacks by the United States and other Western countries and that Turkey must cut interest rates so that inflation falls, a view that counters that of many economists.
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The central bank has taken a series of steps to underpin the lira this week, and bankers said it took one more on Thursday, raising its total lira swap sale limit to 30% from 20% for swap transactions that have not matured.
It had raised the limit to 20% from 10% on Monday in a bid to boost the bank's forex reserves, which fell sharply in the first two weeks of March.
Those falls have raised questions about Turkey's balance of payments and its ability to roll over its foreign loans - and how and from whom it would seek emergency reserves if necessary.
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