JAKARTA: Indonesia's central bank raised its benchmark interest rates by 25 basis points on Thursday, just a week after a surprise off-cycle rate hike, as it seeks to attract fresh capital inflows and halt selling in its battered rupiah and other assets.
Bank Indonesia raised the seven-day reverse repurchase rate to 5.75%, the highest level since May 2025. Twenty of 35 economists in a Reuters survey had predicted the move; two expected a 50-basis-point increase and the other 13 expected no change.
BI also raised the overnight deposit facility rate and lending facility rates by the same amount to 4.75% and 6.50%.
The central bank has now hiked its policy rates by a total of 100 basis points in three moves over the past four weeks.
BI's rare off-cycle increase last week reflected mounting urgency to stabilise the rupiah and anchor investor confidence, after the currency hit a series of record lows amid global volatility, capital outflows and rising domestic policy concerns.
Governor Perry Warjiyo said the rate rise is aimed at strengthening the effort to bolster the rupiah's stability and as a pre-emptive measure to ensure the inflation rate stays within target while global market conditions remain dynamic.
The rupiah slipped to a lifetime trough of 18,190 a dollar on June 8 before regaining some ground after BI's surprise rate hike last week and as global market sentiment was boosted by the U.S. and Iran signing an interim agreement that would end the Iran war and reopen the Strait of Hormuz.
The rupiah, down around 6.5% so far this year and emerging Asia's weakest currency against the dollar, strengthened to 17,725 a dollar after the rate rise from 17,805 earlier.
Indonesia's foreign exchange reserves, which BI uses to intervene to defend the rupiah, have fallen by $12 billion in the first five months of 2026.
The rupiah has been weighed down by a number of factors that have alarmed investors, from President Prabowo Subianto's populist spending plans and expensive fuel subsidies that are straining the national budget to a controversial commodity export policy and doubts about the central bank's autonomy.
The Jakarta stock market has also faced massive selloffs and could see further capital flight if a review underway by global index provider MSCI leads to a downgrade of Indonesia's market status to "frontier" from "emerging".
Inflation quickened slightly in May to 3.08%, but remained within the central bank's target range of 1.5% to 3.5%.
Inflationary pressures could heighten further, with state energy firm Pertamina raising some fuel prices significantly last week and with the El Nino weather pattern threatening a lengthy dry spell that could impact food production. - Reuters
