"Accordingly, the Committee has made a decision to implement a strong monetary tightening to support price stability", it said.
But Erdogan - who has been accused by critics of pressuring the nominally independent central bank - had earlier charged the bank with failing to control inflation and again aired his unorthodox view that low rates bring inflation down.
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".
Inflation ran at 17.9 percent in August, but the latest rate hike - while substantial for Turkey, especially under Erdogan - is too limited to counter such a figure.
After rising as high as 6.1442 to the dollar, the lira eased to 6.1025 on Friday.
The main share index rose 2.1 per cent, with the banking index up 4.8 per cent. Dollar-denominated bonds issued by the Turkish government rose across the curve. This as inflation was up to nearly 18 percent in August, its highest since September 2003 - the year Erdogan first took power as prime minister.
"We have faced a heinous attack targeting the Turkish economy after a series of negative statements from the USA about our country were used as an excuse", said Erdogan, calling the collapse of the national currency against the dollar "an economic assassination attempt".More news: Unai Emery reveals the truth behind relationship with Mesut Ozil
But Neuteboom of ABN Amro said much more was needed for Turkey to turn around "the negative spiral" the economy is in.
"It was a big surprise to us, but probably to every Turkey-watcher", said Nora Neuteboom, an economist at ABN Amro, saying the move was a "positive signal" with the bank wanting to show its independence and commitment to fight inflation. The rate hit the lowest level in two weeks.
Analysts say the lira´s plunge last month had been sparked by a combination of concerns over domestic policymaking and a crisis in relations with the United States.
Against expectations, the central bank did not raise rates at its last meeting in July.
"The bold decision (by Turkey's central bank) reduces the risk that a full-scale financial crisis may unfold", wrote analysts at Rabobank in a note to clients.
That decision sent the lira tumbling by a quarter and prompted Turkish authorities to impose a series of measures meant to support the currency. Erdogan said that all savings should be converted to lira, and called on Turks to trust the national currency.
The lira's deterioration has affected the currencies of other emerging markets as investors sought refuge within the dollar.