Bank Indonesia follows through with fifth interest rate hike

[JAKARTA] Indonesia's central bank raised its benchmark interest rate for the fifth time since May as it intensifies efforts to shield the rupiah from a global rout in emerging markets.

Bank Indonesia increased its seven-day reverse repurchase rate by 25 basis points to 5.75 per cent, as seen by most of the economists surveyed by Bloomberg. That brings the cumulative rate hikes in the past four months to 1.5 percentage points.

Policymakers in South-east Asia's biggest economy have been among the most proactive in the region in trying to fight the market turmoil triggered by tighter US monetary policy, a stronger dollar and growing trade tensions. Aside from rate hikes and foreign-exchange intervention, the authorities have also imposed import curbs to help narrow the current-account deficit.

Governor Perry Warjiyo said domestic consumption remains strong and supportive of growth, which the central bank forecasts at 5 per cent to 5.4 per cent for this year. Inflation is projected to stay inside the 2.5 per cent to 4.5 per cent target for this year and next.

The decision came a day after the Federal Reserve raised its interest rate for a third time this year and signaled more tightening to come.

The rupiah has lost 9 per cent against the dollar this year, the worst performer in Asia after India's rupee.

Bank Indonesia also announced the launch of domestic non-deliverable forward market, which it says will provide an alternative for companies wanting to hedge their dollar exposure and help curb rupiah volatility. The move is seen as complementing the government's earlier measures to improve exports and moderate imports.

BLOOMBERG