Indonesia's Central Bank Delivers Surprise Rate Hike

BI RATE - JAKARTA. Indonesia's central bank delivered a surprise rate hike on Wednesday, stepping up efforts to support the rupiah currency against selling linked to global risk aversion and a delay in the expected timing of any U.S. policy easing.

Bank Indonesia (BI) raised the 7-day reverse repurchase rate by 25 basis points to 6.25%, its highest since the bank made the instrument its main policy rate in 2016.

Six of 35 economists polled by Reuters had predicted the hike, which was BI's first since October. The rest had expected BI to stand pat.

BI also increased the overnight deposit facility and lending facility rates by the same amount to 5.50% and 7.00%, respectively.

"This hike in interest rates is to strengthen the stability of the rupiah exchange rate against the risk of a worsening global economy," BI Governor Perry Warjiyo told a briefing where the rate hike was announced.

Read Also: Thai Central Bank Says Holding Key Rate Steady Creates Policy Optionality

The rupiah extended gains after the announcement and was up 0.45% against the dollar at 0736 GMT at 16,140.

The central bank has been intervening to defend the currency, which had fallen to around 16,200 per dollar - the weakest since 2020 - amid risk-off sentiment in markets as traders scale back expectations for U.S. rate cuts and worry about escalating tensions in the Middle East.

Indonesia's annual inflation rate climbed to a seven-month high in March, though it remained close to the midpoint of BI's 1.5% to 3.5% target range.

Warjiyo said headline inflation was seen staying within the target range this year, and said core inflation was seen under control.

BI kept its outlook for growth in Southeast Asia's biggest economy at a range of 4.7% to 5.5% this year, compared to last year's 5.05% growth.