The Turkish lira, among the most vulnerable emerging-market currencies in the face of a rising U.S. dollar, plunged before recovering on Wednesday after the central bank answered concerns over spiraling inflation and its own independence from government with a rate increase.

The lira fell by as much as 5% against the dollar before recovering and trading around 2% higher on the day, after the Central Bank of the Republic of Turkey raised its late liquidity window lending rate, an overnight lending facility that banks can access,...