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.
Benchmark 10-year Treasury notes hit the psychologically significant 3 percent level for the first time in more than a month as prices on USA 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.
That dwarfs what the market was expecting in the region of around 300 to 500 bps. Facing a deep slide in the lira and a steep run higher in inflation, the central bank felt compelled to lift rates to restore investor confidence-a risky gambit that boosted the lira but could further damage the economy. The rate hit the lowest level in two weeks.
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.
"That said, it's only the first step and we remain of the view that a rate hike on its own may not prove sufficient to lead to a sustainable recovery in the lira".
He described the sudden fall in the value of the lira last month, when the currency reached more than seven against the dollar, as an "economic assassination attempt".
The embattled currency has fallen by 40% this year amid a lack of interest rate hikes to control inflation. "If you say 'inflation is cause, the rate is the result, ' you do not know this business, friend".
But hours later, the Turkish Central Bank ignored Erdogan, raising interest rates to fight price increases and the risk of runaway inflation.
The rate rise comes on the same day as the Bank of England left the interest rate untouched at 0.75%, citing heightened risks to global growth as a result of volatility within emerging markets, as well as tensions between the United States and China.
"By saying the central bank is independent while criticizing it for misguided policies, Erdogan is pointing the finger of blame at the central bank". It later shed some of those gains but was still up over 2.7 per cent in value at 6.15 to the dollar.
-China trade stand-off and an interest rate hike in emerging market trouble-spot Turkey sent an index of global stocks higher on Thursday as risk appetite returned.
Erdogan has linked the slide in the lira's value to the economic attack launched by the Trump administration under a pretext of an ongoing legal case involving an American pastor who is under house arrest in Turkey and facing terrorism charges.
"Against this background, the lira's reaction is still surprisingly limited in my opinion".