JAKARTA, Oct 19 — Indonesia’s central bank hiked its key interest rates today to their highest levels in four years in an unexpected move to defend the rupiah’s value amid growing global economic uncertainty.
Bank Indonesia raised the seven-day reverse repurchase rate by 25 basis points to six per cent, its highest since June 2019. Its two other main rates were also raised by 25 basis points.
“This increase is aimed at reinforcing the policy of stabilising the exchange rate of the rupiah due to the heightened global uncertainty,” said Bank Indonesia Governor Perry Warjiyo in a press briefing.
“It is also a preemptive and forward-looking measure to mitigate its impact on imported material inflation”.
The central bank aims to keep inflation between two and four per cent this year, and between 1.5 and 3.5 per cent in 2024, he said.
The rupiah has outperformed regional peers against a strengthening US dollar, but has nonetheless lost value, hitting 15,800 rupiah per dollar on Thursday, its lowest level since April 2020.
The weakening currency may force the government to raise fuel prices, given the country imports half of its petroleum.
“While the hike is needed, the rate hike might trigger credit slowdown and affect domestic consumption,” said Bhima Yudhistira, an economist from the Centre of Economic and Law Studies.
In addition to the interest rate hike, “another approach is to encourage more foreign exchange earnings to be converted to rupiah”, Yudhistira added. — AFP
