S. for what he called a "heinous economic attack" that has sent the lira tumbling some 40 per cent this year.
The increase, which was higher than expected, boosted the lira by five percent against the dollar and may ease investor concern about Erdogan's influence on monetary policy.
The sudden rise in USD/TRY above 7 was an economic assassination attempt.
Inflation in Turkey is now nearly 20 percent and the crisis there has spread to some other emerging market countries with sizable current account deficits.
Before today's interest rate decision, Mr Erdogan announced he was banning the use of foreign currencies in property sales, rental contracts and leasing transactions and ruled all such transactions must now be made in lira.
It stood at 6.13 to the dollar at 0447 GMT.
The magnitude of the hike was all the more surprising given that just before the decision Erdogan had slammed interest rates as a "tool of exploitation".
The lira's gains is also proving to be a positive across emerging markets as well with the rand and rouble also gaining on the day, both currencies up by more than 1% against the dollar.
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The bank vowed the tight stance in monetary policy would be "maintained decisively until inflation outlook displays a significant improvement" in the statement.
Piotr Matys, emerging markets foreign exchange strategist at Rabobank, said the central bank had taken a decisive step which should allow it to gradually restore confidence in the lira.
"Obviously, it will have negative consequences on the economy but, I would say, it is less important if you have a hard landing than big corporate defaults due to a vicious cycle between (lira) depreciation and inflation", he said.
Key rates are now at their highest level since 2004, around a year after Erdogan first came to power.
The bank implemented what economists described as a hidden interest rate hike in mid-August, forcing banks to borrow at the higher 19.25 percent through the overnight lending facility.
"Great decision - made all the more hard by the huge pressure on the central bank from Erdogan", said Bluebay Asset Management LLC strategist Tim Ash.
The lira has plunged in recent weeks on concerns over domestic policymaking and a crisis in relations with the United States.
Washington has imposed sanctions on two Turkish ministers and doubled tariffs on steel and aluminum imported from the country.