In another bid to prop up the lira, Erdogan earlier on Thursday ordered by decree that property agreements in foreign currencies would not be allowed.
"It nearly seems like it's a game of "good cop, bad cop" being played out between the Turkish authorities - with President Erdogan on the one hand still making statements regarding his dislike of interest rates and. a very sizeable reaction from the central bank in response to the recent inflationary and geopolitical developments", she said.
"Hemati told the media a meeting with the administrators of the Turkish and Russian Central Banks is expected in the near future and he hopes the agreed topics would rapidly come into effect", the Turkish agency said.
It described the hike as a "strong monetary tightening to support price stability".
The lira reacted strongly to the decision, rising by 5% in value to six lira to the U.S. dollar.
A "tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement", it added.
Phoenix Kalen at Societe Generale said the market was both pleased and confused by the bank's move.
The depreciation has fueled higher import costs, contributing to an inflation rate that is more than three times the central bank's target, and many investors are calling for a large increase in borrowing costs to put an end to the rout.
The bank must balance concerns over slipping growth, which, although a robust 5.2 percent in the second quarter on an annual comparison, showed signs of weakness with some analysts predicting Turkey is heading for recession.
The central bank surprised investors by not raising rates when it last met in July.
He earlier charged the bank with failing to control inflation and again aired his unorthodox view that low rates bring inflation down.
Guillaume Tresca, senior emerging market strategist at Credit Agricole said the economy needed to slow down because it was overheating and that an interest rate rise was needed to cap lira depreciation. "If you say "inflation is cause, the rate is the result", you do not know this business, friend", he added. "Erdogan´s speech. was meant to put distance between himself and the (bank´s) decision".
The central bank said it was returning to funding via one-week repos from Friday, having funded the market at an overnight lending rate of 19.25 percent for the last month.
Erdogan's son-in-law Berat Albayrak, who already serves as treasury and finance minister, will become the acting chairman of the fund.
Turkey's currency and inflationary troubles are also compounded by the threat of steel and aluminium tariffs from the United States as well as sanctions over the detention of an American evangelical pastor.