Turkey's economy has been in trouble since Mr Erdogan swept to a fourth term in office in a victory that handed him greater powers including more influence on the country's monetary policy.
The lira rallied 3 per cent to 6.18 against the dollar, having traded at 6.4176 beforehand. It later shed some of those gains but was still up almost three percent in value at 6.16 to the dollar after 1330 GMT.
"We can not allow the use of the tool of exploitation that is interest rates", Erdogan told a meeting in Istanbul on Thursday.
In a decision announced earlier on Thursday, he ruled that property sales and rental agreements must be made in lira, putting an end to such deals in foreign currencies.
He repeated however, his belief that interest rates should be cut, calling them an "instrument for exploitation".
It said: "Accordingly, the committee has chose to implement a strong monetary tightening to support price stability".
"Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement". Late last month, South America's second-largest economy saw that rate jump to a staggering 60 percent in a bid to ease investor fears.
More than a thousand flights canceled in advance of Hurricane Florence
While Florence is no longer considered a major hurricane , its reach has expanded, threatening residents from Georgia to Virginia. A state of emergency has also been declared in Maryland, North Carolina, South Carolina , Virginia and Washington.
About 50 Conservative lawmakers discuss ousting UK Prime Minister Theresa May
A number at the meeting said they had already submitted letters of no confidence in May, the source told the BBC. We have wrapped a suicide vest around the British constitution - and handed the detonator to Michel Barnier.
Apple says new iOS will help battle smartphone addiction
The price will start from RMB 6499 and is available in six colours - Yellow, White, Coral, Black, Blue and Red. Sam's Club is offering a $100 gift card to members who purchase an iPhone Xs or iPhone Xs Max next week.
Economists have argued the nominally independent bank has come under pressure from Erdogan who, only a couple of hours before its decision, launched a blistering attack on the bank and described interest rates as a "tool of exploitation".
He has repeatedly blamed the central bank for high inflation, which hit nearly 18% last month, its highest level since 2003.
Anthony Skinner, director of Middle East and North Africa at Verisk Maplecroft, told AFP he believed the hike had already been agreed. By way of comparison, the Federal Reserve's much-debated rate hikes earlier this year nudged the rate just fractions of a percentage point to around 2 percent in the U.S.
While the lira's plight has made it "rational to expect at least 1000 basis points" added to interest rates, opposition to higher borrowing costs among Turkish officials made a smaller increase more realistic, Rabobank currency strategist Piotr Matys said before the decision.
However, a diplomatic row with the United States and concerns about the president's influence on monetary policy have eroded investor confidence in Turkey in recent months.
"For a country that is in really deep distress like Turkey, what is important is to restore some of the independence of the central bank and take measures to stem the currency's fall".