Jakarta, May 20 - Indonesia's central bank raised its key interest rate by a larger-than-expected 50 basis points on Wednesday, stepping up efforts to support the rupiah currency that has hit record lows recently.
Bank Indonesia (BI) lifted its benchmark 7-day reverse repurchase rate to 5.25%, double the hike forecast by economists. The overnight deposit and lending facilities were also raised to 4.25% and 6.00%, respectively.
Governor Perry Warjiyo said the increase aims to strengthen rupiah stabilization amid global volatility from the Middle East conflict and to keep inflation within the target range for 2026-2027.
The rupiah touched a record low of 17,745 per dollar earlier Wednesday before recovering to around 17,600 after the decision. It has fallen about 6% against the dollar this year.
"The bold 50bp hike shows BI's shift in priority to FX stability and maintains its credibility and independence," said Rangga Cipta, chief economist at Mandiri Sekuritas.
Warjiyo noted that the rate hike, market intervention, and measures to attract capital inflows will help stabilize the rupiah. He expects the exchange rate to stabilize in June and strengthen in July and August.
President Prabowo Subianto earlier unveiled ambitious fiscal deficit and growth targets for next year, pledging to strengthen institutions. The government has shielded consumers from rising fuel prices via subsidies, keeping inflation at 2.42% in April, within BI's target range.
