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(Bloomberg) -- Turkish markets showed signs of stabilizing on Thursday, as authorities took action to offset any spikes in demand for dollars following the shock detention of President Recep Tayyip Erdogan’s main political rival.

With many foreign investors seeing their bets on Turkey rapidly blown up following a police raid on Istanbul Mayor Ekrem Imamoglu’s home on Wednesday, focus is now shifting to how locals will react to the latest crackdown of Erdogan’s 22-year rule. The central bank said it was monitoring currency markets and intervening when necessary.

The lira traded 0.3% lower at 38.00 per dollar as of 1:15 p.m. in Istanbul, after plunging as much as 11% in Wednesday’s chaotic trading session. The main stocks index rose 1.1%, though the banking index dropped 4.6%, adding to the previous day’s 9.9% wipeout.

“Panic selling from both foreigners and locals appears to have cooled off,” said Onur Ilgen, head of treasury at MUFG Bank Turkey in Istanbul. Whether or not local investors rush into dollars is now “the most important issue to be tackled by policymakers,” he said.

Imamoglu, who was expected to be declared the main opposition party’s presidential candidate for 2028, was taken into custody on corruption charges, which he denies. The move sparked fears of unrest, with Turkish authorities throttling Internet access, blocking some communications and social media services, and banning demonstrations or protests across Istanbul province.

Fragile Turnaround

The political turmoil was a stark reminder of the risks involved in investing in Turkey, which had enjoyed a period of relative market stability under the guidance of Finance Minister Mehmet Simsek, a respected former banker tasked with unraveling the effects of years of unorthodox economic policies.

It was also costly for Turkey, with authorities saying they spent as much as $9 billion on Wednesday to support the lira in the aftermath of Imamoglu’s detention.

Still, investors are speculating that the political turmoil doesn’t pose a risk — so far — to Simsek’s economic program. That means further selling pressure from foreign investors, at least, is “likely to be limited,” Goldman Sachs economist Clemens Grafe wrote in a report.

“Investors may take some comfort from the news being unrelated to economic policy and the team in charge,” Grafe said. He added, however, that it’s also unlikely that foreign investors would be in any rush to rebuild their positions in Turkey.

So-called next-day offshore forward implied yields fell to 55% from as high as 175% earlier, indicating easing pressure abroad to exit lira positions. The yield on 10-year government notes in liras rose 47 basis points to 31.21%, after earlier falling 121 basis points.

Gordon Bowers at Columbia Threadneedle in London said he’s still “quite constructive” on lira investments. Returns could be in the low double digits in the coming twelve months, he said, assuming the central bank sticks with its strategy of managing inflation in part by preventing rapid currency depreciation.

“But it’s really about managing that left tail risk, which is undeniably higher,” he said.

(Updates market prices and details throughout, adds comment in fourth paragraph.)