Indonesia's central bank convened its monetary policy meeting on Wednesday, raising interest rates for the first time in two years to support the rupiah, which has been hitting consecutive record lows.
The central bank increased its key 7-day reverse repurchase rate by 50 basis points to 5.25%.
Among 29 economists surveyed, only 16 had anticipated a 25 basis point hike, while the rest expected rates to remain unchanged.
Concurrently, the central bank also raised its overnight deposit facility rate and lending facility rate each by 50 basis points, to 4.25% and 6.00%, respectively.
In an online press conference, Bank Indonesia Governor Perry Warjiyo stated, "This rate hike serves a dual purpose: to further stabilize the rupiah exchange rate against the backdrop of significant global market volatility triggered by the Middle East situation, and as a forward-looking measure to ensure domestic inflation remains within the policy target range for 2026 to 2027."
Recent concerns over Iran's situation dragging down economic prospects, combined with external doubts regarding Indonesia's fiscal expenditure plans, central bank independence, and capital market transparency, have driven the rupiah to repeatedly set new historic lows.
During Wednesday's early trading session, the rupiah briefly fell to a record low of 17,745 per US dollar. Following the announcement of the central bank's rate hike decision, the exchange rate recovered to around 17,600 per US dollar. So far this year, the rupiah has depreciated approximately 6% against the US dollar, ranking among the worst-performing currencies in Asian emerging markets.
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