24-4-2024 (JAKARTA) Indonesia’s central bank, Bank Indonesia (BI), took markets by surprise as it announced a rate hike. The move aims to bolster the country’s currency, the rupiah, which has faced selling pressure due to global risk aversion and a delay in expected US policy easing.
BI raised the 7-day reverse repurchase rate by 25 basis points to 6.25 percent, marking its highest level since 2016 when the instrument became its primary policy rate.
Out of the 35 economists polled by Reuters, only six had predicted the rate hike, making it the first increase since October. The majority had anticipated BI to keep rates unchanged.
To align with the rate hike, BI also raised the overnight deposit facility and lending facility rates by the same 25 basis points, setting them at 5.50 percent and 7.00 percent, respectively.
During the announcement of the rate hike, BI Governor Perry Warjiyo emphasized that the move was aimed at strengthening the stability of the rupiah against the potential risks posed by a deteriorating global economy.
Following the news, the rupiah experienced further gains, appreciating by 0.45 percent against the US dollar at 0736 GMT, reaching 16,140.
In recent times, the central bank has been actively intervening to protect the rupiah, which had weakened to around 16,200 per dollar, its lowest level since 2020. Market sentiment has been affected by reduced expectations of US rate cuts and concerns over escalating tensions in the Middle East.
Notably, Indonesia’s inflation rate reached a seven-month high in March, although it remained near the midpoint of BI’s target range of 1.5 percent to 3.5 percent.
Governor Warjiyo expressed confidence that headline inflation would remain within the target range for the year, while also noting that core inflation was under control.
BI maintained its growth outlook for Indonesia, projecting a range of 4.7 percent to 5.5 percent for this year, compared to the 5.05 percent growth recorded in the previous year.
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