(Bloomberg) -- Turkish financial markets steadied as US President Donald Trump endorsed his counterpart Recep Tayyip Erdogan and the central bank pledged to further tighten policy if needed.

The lira was little changed against the dollar on Wednesday as local stocks and bonds retreated after rebounding in past days. While markets have calmed following last week’s chaotic exodus of foreign capital, triggered by a crackdown on the opposition, investors remain concerned about the costs of Turkey’s all-out push to restore stability.

“The initial shock appears over,” said Mehmet Gerz, CEO of Istanbul-based asset manager Ata Portfoy. “However, risk of political uncertainty has come back to Turkey’s investment climate. We may need to reevaluate our investment thesis and 2025 expectations.”

According to calculations by Bloomberg Economics, the rout probably reduced Turkey’s foreign-currency reserves by $26.6 billion in the three days over March 19-21. This left the central bank’s net reserves at $32.4 billion at the end of last week, economist Selva Bahar Baziki wrote.

Governor Fatih Karahan said during an event in Istanbul that the central bank will “tighten monetary stance should there be a deterioration in the inflation outlook.” He said it will continue to use “all policy tools within market rules” after its “rapid action” moves to curb volatility.

‘Good Leader, Too’

Trump praised President Erdogan, confirming investor expectations that Turkey was likely to face little external political pressure after Ekrem Imamoglu, the popular mayor of Istanbul and the head of state’s main political rival, was detained and then jailed.

“Good place, good leader, too,” Trump said during a meeting of ambassadorial nominees on Tuesday. Trump’s comments came after a brief introduction by Tom Barrack, the founder of Colony Capital LLC who is Trump’s longtime friend and nominee to be ambassador to Turkey.

Erdogan kept pressure on the opposition, whose actions he blames for the market rout, saying on Wednesday that those who “sabotage” Turkey’s economy will be held accountable.

The country’s top economic officials have intensified efforts to reassure investors who were unsettled by the political turmoil and its implications for markets. On a call attended by thousands of foreign investors on Tuesday, Treasury and Finance Minister Mehmet Simsek said he’d do “whatever it takes” to stabilize markets, according to people who joined the teleconference organized by Citigroup Inc. and Deutsche Bank, and who asked not to be named because the meeting was private.

Lira Focus

During the call, Simsek and Karahan made a broad presentation on Turkey’s economy to ease investor concerns on everything from inflation to interest rates and government debt. But lira policy was front and center, the people said.

Turkey’s BIST 100 stock index dropped as much as 1.5% on Wednesday and closed 0.7% lower in Istanbul. The yield on two- and 10-year government bonds rose 155 basis points and 108 basis points, respectively, while the lira traded 0.1% weaker at 38.0079 per dollar.

The currency has held in a tight range around 38 per dollar for six trading days since news of the mayor’s detention briefly sent it plunging past 40 per dollar.

“Judging by the relatively stable lira-dollar exchange rate compared with some key equity indexes, we think the central bank has continued its pro-lira interventions beyond Friday, further depleting reserves,” Bloomberg Economics’ Baziki said. “We expect these pro-lira interventions to extend into the near term.”

The currency’s performance against peers has been central to investor-friendly policies Simsek began implementing after his appointment in 2023. A stable lira allowed carry trade investors — who borrow in currencies with low interest rates and then invest in higher-yielding assets in another currency — to post more than 30% returns in Turkey last year, one of the best in the world.

Those trades helped Turkey to accumulate foreign reserves after years in the red. That’s what set the alarm bells ringing for policymakers when Imamoglu’s March 19 detention pushed the lira as much as 11% lower within hours, risking a sudden unraveling of the investment proposition that made the lira a top trade in 2024.

Simsek and Karahan also reinforced Erdogan’s pledge to maintain the conventional policies that have been in place for two years now, according to people who attended. The officials said they were wary of how much of a pass-through the lira’s recent weakness might have on inflation, and left the impression that they might opt to keep interest rates unchanged at the central bank’s next policy meeting scheduled for April 17, they said.

Simsek told the investors that 60% of dollar demand came from foreigners during the selloff last week, 30% from local corporates and just 10% from retail investors, according to the people.

“Most of the outflows seems to have been foreigners,” said Timothy Ash, a senior emerging-markets sovereign strategist at RBC Bluebay. There’s “little evidence of dollarization by locals, which would be a game changer,” he said.

--With assistance from Jorgelina do Rosario.

(Recasts with central bank comments and latest markets from the first paragraph.)