"If needed, further monetary tightening will be delivered", the bank said in a statement.
The lira rallied 3 per cent to 6.18 against the dollar, having traded at 6.4176 beforehand.
"This was 300 basis points more than expected so we are very surprised", Win Thin, Global Head of Emerging Markets at Brown Brothers Harriman, told DW.
But hours later, the Turkish Central Bank ignored Erdogan, raising interest rates to fight price increases and the risk of runaway inflation. Economic orthodoxy suggests the opposite.
Key rates are now at their highest level since 2004, around a year after Erdogan first came to power.More news: WNBA Finals: Storm sweep Mystics to win third title
There had been indications from the bank that it would raise rates after inflation came in at almost 18 per cent in August, according to official data last week. "How can the private sector invest in such high interest rates?" he asked, adding that such margins were only made by drugs dealers.
Erdoğan has always been pressuring the bank to keep interest rates low to encourage economic growth.
"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.
The bank had not touched interest rates since early June with markets becoming increasingly concerned that the policy of the nominally independent bank is being dictated by Erdogan.
The interest rate decision will be announced at 1100 GMT.
It was not immediately clear if Erdogan had been aware of the central bank's decision when he made his comments.More news: EPL: Marcus Rashford takes final decision on future with Manchester United
The lira has lost 40 percent of its value against the USA dollar this year over concerns about Mr Erdogan's influence and a diplomatic spat between Ankara and Washington but firmed to 6.01 following the interest rate decision, from more than 6.4176 beforehand. 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.
The rate hit the lowest level in two weeks.
"Erdogan's comments clearly show that he does not support this and it becomes much more hard, if not impossible, for the Turkish central bank to tighten enough to stabilize the lira and get inflation under control", Esther Reichelt, a forex strategist at Commerzbank in Frankfurt, told DW.
In a series of steps to cushion the fall of lira, Turkey has limited derivative transactions, lowered leverage ratios in trading, and required Turkish exporters to convert the bulk of their overseas revenue into lira.More news: Pope to meet U.S. church leaders over 'abuse cover-up'