Indonesia hiked its key interest rate to 6.00 per cent on Thursday, the first change in over a year as it seeks to boost confidence in the under-pressure rupiah and head off an expected rise in inflation.
The unexpected 25 basis point hike was the second time the central bank has changed monetary policy in a few days as it seeks to shore up the ailing Indonesian currency which fell to a four-year low this week.
The slide of the rupiah mirrors falls in currencies of other developing economies, as foreign investors exit emerging markets due to expectations that huge stimulus schemes in the developed world will soon end.
Developing economies have also seen huge sell-offs on their stock markets.
“The meeting of the board of Bank Indonesia governors ended with the decision to raise the Bank Indonesia rate by 25 basis points to 6.00 per cent,” said bank spokesman Peter Jacobs.
Tightening of monetary policy tends to boost currencies.
The government in Southeast Asia’s biggest economy is also poised to hike fuel prices for the first time in over four years in coming weeks, a move that is expected to prompt a sharp rise in inflation.
Bank Indonesia last changed its key rate in February 2012, when it cut the rate to a record low of 5.75 per cent.
Late Tuesday, Bank Indonesia announced it would hike the rate it pays lenders for overnight deposits, known as the Fasbi, by 25 basis point to 4.25 per cent.
The move was aimed at encouraging lenders to leave their rupiah with the central bank, thereby reducing money supply and in theory stopping the currency from weakening further.
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