Turkey's Central Bank raises late liquidity window interest rates from 13.50 to 16.50 percent..
"The partial volatility in the currency is certainly not consistent with the economic realities of Turkey", he said, pointing to Turkey's 7.4 percent growth rate and other indicators.
"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.
Analysts have long said Erdogan's administration has been split between pro-market pragmatists like Deputy Prime Minister Mehmet Simsek, a former Merrill Lynch strategist, and advisors known for outlandish statements such as Yigit Bulut. This deepened worries about the ability of the central bank's Monetary Policy Committee to tame double-digit inflation.
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Turkey's currency lira has fallen to an all-time low against the US dollar amid fears of economic instability as the country heads toward crucial elections next month.
Things began to fall apart when President Erdogan who was in London for a three-day visit to calm concerns of global investors told Bloomberg last week that he would seek a greater say in shaping monetary policy.
The Turkish lira has fallen more than 5% to hit a record low against the United States dollar.
"Current elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior", the Central Bank said in a statement after the meeting.
Investors have sold off the lira on concerns about monetary policy, particularly after Erdogan - a self-described "enemy of interest rates" - said last week he expected to assert greater control over policy after elections on June 24.
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Turkish business is feeling the pain of the dramatic slump in the lira, with many firms squeezed by higher rents and import bills and consumers holding back on spending in the hope the currency will rebound.
The continued depreciation of the Turkish currency would increase the chances of an emergency and substantial rate hike, said William Jackson, an emerging-market economist at Capital Economics, an economic research company.
"The central bank has hiked interest rates several times over the past few years to shore up the currency". But they also tend to hinder economic growth by making it costlier to borrow and can arouse public discontent. Since then, the currency has lost more than half its value against the dollar. Following the bank's decision, the dollar/lira rate fell steeply to below 4.60.
Turkey has means to curtail the currency fluctuations in the short term, President Recep Tayyip Erdogan said on Wednesday. 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.
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