The bank increased its one-week repo rate to 24%, a jump of 625 basis points that was nearly double what forecasters expected.
World markets calmed after signs of movement in the U.S.
Benchmark 10-year Treasury notes hit the psychologically significant 3 percent level for the first time in more than a month as prices on US government bonds fell on economic data that seemed solid enough to support plans by the Federal Reserve to raise rates another two times in 2018.
The central bank has already increased borrowing costs since its last meeting in July-when it unexpectedly left policy unchanged-by tightening liquidity and forcing banks to borrow from a more expensive overnight rate.
At a speech to officials from his AK Party in Ankara, Erdogan also said Turkey would see the result of the central bank's independence after its substantial rate increase a day earlier. USD/TRY has recouped some losses back to 6.15 now but the Turkish central bank has sent out a message with this one.
Turkish lira implied volatility gauges fell to their lowest levels in more than a month on Friday, as sentiment continued to improve.
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.
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It stood at 6.13 to the dollar at 0447 GMT. The independence of monetary policy has been in doubt since Erdogan pledged in his election campaign this year to take on a greater role to bring interest rates lower.
Washington has imposed sanctions on two Turkish ministers and doubled tariffs on steel and aluminum imported from the country. In August of past year, one dollar bought Three.5 lira; at some level of the last month it fetched more than 6.
The bank said on Thursday that inflation developments pointed "to significant risks to price stability" due to the recent fall in the value of the lira.
Erdogan has no longer helped his case by doubling down on his intransigence some other time the US, analysts remark.
One of Erdogan's advisers mainly known for his outlandish statements, Yigit Bulut, was removed from the board, while new members included Rifat Hisarciklioglu, the president of the Union of Chambers and Commodity Exchanges of Turkey (TOBB).
The euro hovered around $1.1620, having gained around 0.6 percent so far this week. "Some corporates may more than doubtless perhaps expertise issues in repaying their exterior debt in the arrival months, which is ready to weigh on financial boost".
Erdoğan also said that Turkey is putting new government investments on hold, ministries were reviewing their plans and would not consider making fresh investments. Turkey contains 1 percent of world GDP.