It said: "Accordingly, the committee has made a decision to implement a strong monetary tightening to support price stability".
Brett Diment at Aberdeen Standard Investments said raising rates would put "Turkey on the slow road to recovering some monetary policy credibility, and that is critical".
"As of today, I have not seen the central bank fix inflation rates as they promised", Erdogan went on.
The currency has plunged in recent months and even after Thursday's rise was down nearly 39% against the dollar this year.
The MSCI All-Country World index, which tracks shares in 47 countries, rose 0.24 percent and touched its highest since September 4.
The currency has lost 40 percent of its value against the dollar this year, hit by concerns about Erdogan's influence on monetary policy and more recently by a diplomatic spat between Turkey and the US. "If you say "inflation is the cause, the rate is the result", you do not know this business, friend", he added.
Economists have argued the nominally independent bank has come under pressure from Erdogan who, only a couple of hours before its decision, launched a blistering attack on the bank and interest rates.
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People are seen inside a shelter run by Red Cross before Hurricane Florence comes ashore in Grantsboro, N.C., September 13, 2018. Millions were expected to lose power from the storm and restoration could take weeks.
Turkish lira implied volatility gauges fell to their lowest levels in more than a month, as sentiment continued to improve.
Erdogan previous year said the fund needed a "reorganisation" after the first chairman Mehmet Bostan was removed from his post in September 2017.
On Thursday, the Turkish Central Bank exercised that independence - and appeared to reassure investors in the process.
He said Turkey also needed to resolve a dispute with the United States, which helped drive the lira to a record low of 7.24 against the dollar a month ago, and rebalance the economy away from big infrastructure projects and consumer spending.
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.
Against expectations, the central bank did not raise rates at its last meeting in July.
That decision sent the lira tumbling by a quarter and prompted Turkish authorities to impose a series of measures meant to support the currency. He also called on Turks to convert their savings to lira and trust in the national currency. In a bid to shore up the Turkish lira, Erdoğan's government issued a decree on Thursday banning the use of foreign currency in the sale and renting of property and the leasing of vehicles.