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CENTRAL BANK - JAKARTA. Indonesia's central bank unexpectedly raised interest rates on Thursday to put a floor under the rupiah exchange rate, which has come under pressure amid U.S. monetary tightening and rising geopolitical risks.
Bank Indonesia (BI) hiked the benchmark 7-day reverse repurchase rate by 25 basis points to 6.00%, its second hike this year and its seventh since starting its tightening cycle in 2022.
All economists polled by Reuters had expected no change.
BI's two other rates were also raised by the same amount.
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The decision came as the rupiah faced renewed pressure, hitting its lowest since 2020 earlier on Thursday as risk-averse investors prefer safe haven investments amid monetary tightening in advanced economies and tensions in the Middle East.
"This increase is to strengthen stabilisation measures for the rupiah against the impact of increasing global uncertainty, and as a pre-emptive and forward-looking step to mitigate its impact on inflation through imported goods," Governor Perry Warjiyo said.
He described the global market condition as "fast changing and very unpredictable".
BI also said it will issue FX-denominated securities to deepen the domestic foreign exchange market, ease liquidity measures for banks, while extending a zero downpayment policy for mortgages and auto loans to boost lending.
The rupiah recouped some of its losses after BI's announcement. It had weakened by as much as 0.81% prior to the rate announcement.
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The unit has been one of the best performing emerging Asian currencies, propped up partly by Indonesia's trade surpluses.
Wary of Indonesia's large stock of foreign currency debt, analysts have said the rupiah's weakness is holding BI back from cutting interest rates, even as inflation cooled to a 19-month low in September, near the lower end of BI's 2% to 4% target range for 2023.
BI will lower the target range to 1.5% to 3.5% next year.
Economists in the latest Reuters survey had expected BI to keep rates unchanged until the end of the first quarter of 2024, longer than previously expected.
BI kept its growth forecast for Southeast Asia's largest economy at 4.5% to 5.3% in 2023.
