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(Bloomberg) -- The Turkish lira headed for its steepest weekly drop in nearly two years and stocks slumped as an emergency interest-rate increase failed to halt the currency’s retreat amid mounting political tensions.

The detention of a key opposition politician rattled investors this week, sending markets into a nosedive on Wednesday and prompting action from the central bank to stop locals from switching their savings into dollars.

The currency was trading down 0.5% at 38 per dollar at 11:29 a.m. in Istanbul on Friday, extending its losses over the past five days to 3.8% — its worst performance since June 2023. The benchmark Borsa Istanbul 100 Index slumped 7%, triggering circuit breakers and adding to a weekly retreat that’s erased about $30 billion from the value of the Turkish equity market.

Lenders sold as much as $9 billion to curb currency volatility, a central bank official told Bloomberg earlier in the week, while policy makers delivered a shock increase to the overnight interest rate on Thursday. Goldman Sachs Group Inc. economists said the move was aimed at containing outflows from lira deposits.

Protesters have taken to the street since Istanbul Mayor Ekrem Imamoglu, — President Recep Tayyip Erdogan’s most powerful rival — was detained. Investors are waiting to see if the demonstrations escalate over the weekend as the main opposition party is planning more gatherings on Friday evening.

The market turmoil is due to “pure local political risks,” according to Tufan Comert, an emerging market strategist at BBVA SA in London.

Market Volatility

Thursday’s 200-basis-point hike to Turkey’s overnight lending rate will allow policymakers to raise the average cost of funding they provide to commercial lenders and prevent a weaker lira from stoking inflation. The bank also said it would suspend lending at its lower, benchmark rate of one-week repo — which stands at 42.5% — for an unspecified period.

The decision brought relative stability to the offshore lira market, where the cost of borrowing in the Turkish currency was at 87% on Friday morning, after rising to 175% earlier in the week.

Goldman, along with other banks, sees a reduced chance of an interest-rate cut at the central bank’s next meeting, on April 17. The expectations have hit banking stocks hard, with the BIST Banks Index down 22% in the week.

Lira Rout Lures Hedge Funds as Favorite Trade Goes Negative

(Updates with stocks moves, lira’s latest level.)