Independent experts say Turkey should increase rates to help stem the selling pressure on the currency, as higher returns would entice global investors.
All 11 economists in a Reuters poll had forecast the bank would tighten, with the predictions ranging between 225-725 basis points as it balances concerns over the lira's weakness with worries about a sharp economic slowdown.
The lira collapsed against the dollar last month amid concerns about Erdogan's growing control over monetary policy in Turkey and a dispute with the U.S. that led to sanctions.
It remains to be seen how the news will sit with Erdogan, however.
Erdogan said Turkey had proved successful in averting those economic attacks thanks to measures deployed by state institutions and economic administration.
"Hiking today does get Turkey on the slow road to recovering some monetary policy credibility, and that is critical".
The latest rate hike could help ease fears that the central bank cannot act against Erdogan's wishes.
In a statement, the central bank noted Thursday that the local economy is weakening and inflation is rising.
"Accordingly, the Committee has chose to implement a strong monetary tightening to support price stability", it said. Since the beginning of the year, the Turkish currency has lost more than 40% of its value against the Euro. Australian shares were up 0.6 percent, Seoul's Kospi rose 1.4 percent and Hong Kong's Hang Seng gained 1 percent.
The bank later said on Twitter that funding would be provided via the policy rate, the one week repo auction rate, instead of through overnight lending from September 14. 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 central bank is independent and makes its own decisions". "If you say ´inflation is the cause, the rate is the result´, you do not know this business, friend", he added.
Istanbul-based economist Ozlem Derici Sengul said investors were anxious about the central bank not being able to take such action due to political pressure, so "the move built credibility".
Uncertainty around the global outlook for trade was highlighted by the European Central Bank, which on Thursday kept policy unchanged as expected and warned that risks from protectionism were growing.
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