JAKARTA, June 9 (Reuters) – Indonesia’s central bank raised interest rates by 25 basis points on Tuesday in an unexpected off-cycle rate hike, taking the benchmark rate to 5.50% as it moves to stabilise\u00a0the rupiah, which has hit a series of record lows.<\/p>\n
\n Bank Indonesia (BI) said in a statement posted on its website that the off-cycle rate hike was necessary because “the rupiah exchange rate has weakened more than expected” since its last meeting.<\/p>\n
\n The bank was scheduled to meet next week with the rupiah coming under mounting pressure after falling 8% this year and 7% since the Iran war erupted, making it\u00a0one of the world’s worst performing currencies.<\/p>\n
\n The currency strengthened slightly to 18,075 after the decision, a day after touching another record low of 18,190 per U.S. dollar. In the past three weeks it experienced its steepest drop since 2020.<\/p>\n
\n BI hiked rates by a higher than expected 50 basis points in its last meeting in May. But even that hike and a $12 billion drop this year in Indonesia’s foreign exchange reserves, which the central bank uses to defend the rupiah, have not been able to shore up the currency.\u00a0<\/p>\n
\n “This rate hike is a further step to strengthen the rupiah’s exchange rate stabilisation against the impact of high global volatility caused by the war in the Middle East and a preemptive measure to maintain inflation in 2026 and 2027 within the target range,” BI said.\u00a0\u00a0\u00a0<\/p>\n
\n The rupiah has been\u00a0under pressure due to a wide range of investor worries, including President Prabowo Subianto’s big spending plans and a ballooning fuel subsidy budget following the Iran war, along with doubts about the central bank’s autonomy and controversial new commodity export policies.<\/p>\n
\n Meanwhile, the central bank’s escalating interventions in the currency markets have drained Indonesia’s forex reserves to their lowest level in nearly two years. They dropped by $1.3 billion in May to $144.9 billion, despite the government’s $3.5 billion sale of U.S. dollar- and euro-denominated bonds last month.<\/p>\n
OTHER MEASURES IN PLACE TO STRENGTHEN RUPIAH<\/p>\n
\n BI also said its policy intended to increase returns by attracting foreign portfolio investment inflows into Indonesia.<\/p>\n
\n Bond yields in peer economies like Mexico, India, and the Philippines are already high, David Sumual, Chief Economist at Bank Central Asia (BCA) said.<\/p>\n
\n “For this, maybe we indeed need to be more aggressive because if we look at the SRBI (BI rupiah denominated securities) rate, it is already at 7.25%, which is even higher,” Sumual added, referring to the 12-month rate.<\/p>\n
\n Barclay’s said in an analyst note that the central bank was also using other measures to attract capital inflows, including a 10% reduction in the hedging swap rate for foreign investors as well as higher 6-, 9- and 12-month SRBI yields.<\/p>\n
\n It added that it expected another hike of 25 basis points in next week’s meeting, taking rates to 5.75%, with the possibility of a larger, 50bp move.\u00a0<\/p>\n
\n It noted that such back-to-back moves have a precedent. BI hiked its policy rate by 50 basis points in an off-cycle meeting in 2013 and then cut it by 25 basis points just days later in a scheduled meeting.\u00a0<\/p>\n
\n Barclay’s said that BI could start making cuts if the rupiah is stabilised.<\/p>\n
\n (Reporting by Gayatri Suroyo, Ananda Teresia, Stefanno Sulaiman; Writing by Gibran Peshimam; Editing by David Stanway)<\/p>\n
\n By Gayatri Suroyo and Ananda Teresia<\/p>\n","protected":false},"excerpt":{"rendered":"JAKARTA, June 9 (Reuters) – Indonesia’s central bank raised interest rates by 25 basis points on Tuesday in…\n","protected":false},"author":2,"featured_media":490210,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[72,113,61,60,123],"class_list":["post-490209","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-ie","tag-ireland","tag-markets"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/490209","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=490209"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/490209\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/490210"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=490209"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=490209"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=490209"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}