UBS chief economist for EMEA emerging markets Gyorgy Kovacs said a giant rate hike of 350-400 basis points would be "consistent with real rate levels that in the past helped to stabilise the currency" but warned a deal to normalise ties with the USA may also be needed.
Relations between the two countries deteriorated in the wake of US President Donald Trump's decision to increase tariffs on Turkish aluminum and steel to 20% and 50% respectively.
Reminding the world of the time when Turkey rushed to America's help whenever necessary, during the past six decades, Erdogan recounted Turkish contribution in defusing the Korean and Cuba missile crises, and sending troops to Afghanistan in the wake of the September 11 terror attacks.
Turkey's financial crisis and further US pressure spurred more concern among investors as fears appeared to spread to American markets. Financial upheaval risks further destabilizing an already volatile region.
Without naming countries, Erdogan said supporters of a failed military coup two years ago, which Ankara says was organised by a US-based Muslim cleric, were attacking Turkey in new ways since his re-election two months ago.
Trump announced the punitive doubling of tariffs on Twitter, with the White House saying the sanctions would take effect from 13 August, AFP reported. The White House said he had authorised them under Section 232 of USA trade law, which allows for tariffs on national security grounds.
The fallout from Donald Trump's trade war with Turkey - which has sent the country's currency plummeting - may lead to financial turmoil across Europe, experts fear.
The Turkish delegation met with the State Department's No. 2 official, John Sullivan, on Wednesday to address friction between the North Atlantic Treaty Organisation allies.
The Turkish crisis has set off a wave of selling across emerging market assets, reviving the spectre of contagion that has been the sector's Achilles heel for decades.
The warning comes after the Turkish lira fell by an astounding 20 per cent on Friday.
Turkey's woes have been aggravated by investor worries about the economic policies of Mr Erdogan, who won a new term in office in June with sweeping new powers.
"Some countries have engaged in behavior that protects coup plotters and knows no laws or justice", Erdogan said.
The meetings came as Turkey seeks to stanch an economic meltdown amid fallout from USA sanctions imposed last week over the continued detention of the pastor, Andrew Brunson, who was jailed on espionage and terrorism suspicions more than two years ago and recently released to house arrest.
Erdogan urged Washington to give up the misguided notion that bilateral relations could be "asymmetrical" and realise that Turkey had alternatives "before it is too late". The U.S. responded by filing a complaint against the country with the World Trade Organization.
In 2017, 19 billion dollars worth of goods were traded between the US and Turkey. It is host to a critical part of the Western alliance's missile defense system again Iran.
"Another source of frustration relates to the partnership between the United States and the P.Y.D./Y.P.G., the Syrian branch of the P.K.K., an armed group that is responsible for the deaths of thousands of Turkish citizens since 1984 and that is designated a terrorist group by the United States".
"This is a domestic and national struggle", Erdoğan said, according to The Associated Press. Gulen has denied the allegation.
Andrew Craig Brunson, an evangelical pastor from Black Mountain, North Carolina, arrives at his house in Izmir, Turkey, Wednesday, July 25, 2018.