(Adds Erdogan quotes)
By Daren Butler and Behiye Selin Taner
ISTANBUL, May 23 (Reuters) - Turkey's central bank raised interest rates by 300 basis points on Wednesday in an emergency move to put a floor under the plunging lira currency and calm investors unnerved by interventions from President Tayyip Erdogan.
The central bank, which had been scheduled to hold its next policy-setting meeting on June 7, said it had increased its top interest rate to 16.5 percent from 13.5 percent, prompting a sharp rally in the lira after it earlier tumbled 5 percent.
Investors had been betting the selloff in the lira - which has fallen about 20 percent so far this year to a series of record lows - would force the bank into action.
The currency reversed course after the decision and was about 2 percent firmer on the day at 4.5656 to the dollar at 1917 GMT. It earlier hit an all-time low of 4.9290.
"It is high time to restore monetary policy credibility and regain investor confidence," Deputy Prime Minister Mehmet Simsek said on Twitter, shortly before the central bank's announcement.
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. This deepened worries about the ability of the central bank's Monetary Policy Committee to tame double-digit inflation.
Following the bank's move, Erdogan said "financial discipline will continue and the necessary things will be done for financial stability".
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.
He appealed to Turks not to favour foreign currencies over the lira, and said authorities "will definitely take measures to lower inflation and the current account deficit in a very different way after the elections."
In a statement on the rate hike, the central bank said inflation, which stood at an annual 10.85 percent in April and has been as high as 12.98 percent in recent months, continued to pose risks.
"Accordingly, the Committee decided to implement a strong monetary tightening to support price stability," it said.
"At long last. If they had listened to the markets weeks ago and done this back then they may have been able to get away with a lower rate hike," said Timothy Ash, emerging markets debt strategist at BlueBay Asset Management.
"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 last time the central bank raised interest rates at an emergency meeting was in January 2014, in an attempt to stop a similar selloff. Since then, the currency has lost more than half its value against the dollar.
Erdogan wants lower borrowing costs to fuel credit and economic growth, particularly as he heads into next month's parliamentary and presidential elections.
But the central bank may have to raise rates further on June 7, said Inan Demir, senior emerging markets economist at Nomura International. "I think it would be still too early to call the end of the lira weakness but obviously this is a good start for the central bank," Demir said.
Win Thin, Global Head of Emerging Market Currency Strategy at Brown Brothers Harriman in New York, said Wednesday's increase was the "bare minimum", and something closer to 20 percent in the top rate would be needed to calm the lira.
Credit ratings agencies have also sounded the alarm.
S&P Global senior sovereign analyst Frank Gill told Reuters on Tuesday that government finances could deteriorate rapidly if authorities failed to stem pressure on the currency and government borrowing costs . (Additional reporting by Orhan Coskun, Claire Milhench, Ece Toksabay, Ali Kucukgocmen, Karin Strohecker, Nevzat Devranoglu, Rodrigo Campos, Ezgi Erkoyun; writing by Daren Butler, David Dolan and Dominic Evans; editing by John Stonestreet and David Stamp)