It said: "Accordingly, the committee has made a decision to implement a strong monetary tightening to support price stability".
"The central bank will continue to use all available instruments in pursuit of the price stability objective", the central bank's monetary policy committee said in a statement.
But just hours before the CBRT decision, president Erdogan had dubbed interest rates as a "tool of exploitation", with the lira sliding further.
The central bank said there was still an upside risk to the inflation outlook from what it called a deterioration in pricing behaviour, despite weaker domestic demand conditions.
The bank must balance concerns over slipping growth, which, although a robust 5.2 per cent in the second quarter on an annual comparison, showed signs of weakness with some analysts predicting Turkey is heading for recession.
The lira firmed to 6.01 against the dollar following the decision, from more than 6.4176 beforehand.
The lira is down 38% against the dollar this year despite Thursday's slim gain. At 1122 GMT, it stood at 6.15.
The next two Monetary Policy Committee meetings are to be held in October.
But Erdogan - who has been accused by critics of pressuring the nominally independent central bank - had earlier charged the bank with failing to control inflation and again aired his unorthodox view that low rates bring inflation down.
There had been indications from the bank that it would raise rates after inflation came in at almost 18 percent in August. Subsequently, the lira lost some 25 percent of its value while Turkish authorities have taken a series of steps created to support the currency, with the central bank taking liquidity measures and the banking watchdog limiting derivative transactions.
Countering a trend popular within Turkey, especially within the retail sector, the government said any contracts previously made in foreign currency but which were now in effect must be converted into lira within 30 days.
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.