But Turkey's currency has been hit especially hard because of the political backdrop: Though the central bank is in theory independent of the government, Erdogan has exerted pressure on the bank not to raise rates and potentially stir unrest as he prepares for early presidential and parliamentary elections next month.
The Turkish lira regained some of its value after the bank's monetary policy committee held an emergency meeting and announced it was raising the rate from 13.5 percent to 16.5 percent.
"The Central Bank governor and members of the monetary policy committee have my full backing in doing what's necessary to stem the slide in lira and achieve price stability", he added.
The plunge in lira created anxiety amid lack of action from the Central Bank for a long time.
The exchange rate of lira against dollar has fallen about 20 percent from 3.78 at the beginning of this year.
Turkey's currency lira has fallen to an all-time low against the USA dollar amid fears of economic instability as the country heads toward crucial elections next month.
Many investors have been calling for higher interest rates to bring down inflation, which is in double figures.
But he also said the currency's volatility did not reflect economic reality and, echoing his frequent references to foreign threats, warned that he would not let "global governance types" ruin the country.
But the lira's depreciation by almost 19 percent against the United States dollar since the snap polls were called on April 18 may signal the economy could be a burden, rather than a boost, for Erdogan.
"The decision will ease investors' fears that the central bank is unwilling or unable to tighten policy ahead of elections scheduled for June", said Jason Tuvey, emerging markets economist at London-based Capital Economics.
"They might still need to hike further on June 7, but at least this hike gives them a chance of getting there without much more damage".
The currency is now trading at 4.8 per dollar, with pressure on the central bank to hike interest rates as the lira goes into free-fall.
Erdogan wants lower borrowing costs to fuel credit and economic growth, particularly as he heads into next month's parliamentary and presidential elections.
Turkish President Recep Tayyip Erdogan has referred to high interest rates as "the mother and father of all evils" and is campaigning for re-election on a platform that promises the central bank will provide cheap lending.
The Turkish Lira has bounced from central bank intervention after a scorching run down the charts, and the USD/TRY is back into 4.5685. His remarks for potential interference in the Central Bank's independent policy-making mechanism produced a backlash in worldwide markets and sent lira plunging to historic lows.