The lira has lost around 40 percent of its value this year amid growing worldwide concern over the health of the Turkish economy and a damaging diplomatic dispute with the US.
The lira firmed to 6.01 against the dollar following the decision, from more than 6.4176 beforehand.
He added that the lira was experiencing "fake volatility", repeating his view that the currency's fall was part of a foreign plot and the result of an economic war.
Erdogan also used his speech to attack the central bank for consistently missing its inflation targets, and faulted policy makers for failing to see what he considers to be the true relationship between the cost of credit and consumer prices.
The inflation rate in Turkey rose to almost 18 percent last month.
Erdogan also issued a decree in the country's Official Gazette stipulating that transactions for property sale, rental, business and service contracts must be conducted in Turkish lira, rather than in foreign currencies.
It stood at 6.13 to the dollar at 0447 GMT.
Must give a lesson to those who exploit with price hikes.
The Turkish Central Bank announced the increase despite fears President Recep Tayyip Erdogan - an avowed "enemy of interest rates" - was putting pressure on the bank to keep rates on hold.
It vowed the tight stance in monetary policy would be "maintained decisively until inflation outlook displays a significant improvement".
"The central bank is independent and makes its own decisions", he said.
It said: "Accordingly, the committee has chose to implement a strong monetary tightening to support price stability".
Key rates are now at their highest level since 2004, around a year after Erdogan first came to power.
The bank implemented what economists described as a hidden interest rate hike in mid-August, forcing banks to borrow at the higher 19.25 percent through the overnight lending facility.
It was not immediately clear if Erdogan had been aware of the central bank's decision when he made his comments.
The bank later said funding would be provided via the policy rate, the one week repo auction rate, instead of through overnight lending from September 14.
Analysts say the lira's plunge last month had been sparked by a combination of concerns over domestic policymaking and a crisis in relations with the United States (US).
A growing crisis became acute earlier this year following the detention of an American pastor on espionage and terror-related charges, which prompted Donal Trump to double the import tariffs on Turkish steel and aluminium.