Central Bank Raises Key Interest Rate By 25bp, Defying Consensus

Bank Indonesia raised its 7-Day Reverse Repo Rate by 25bp to 6.00%, even as an overwhelming majority of analysts (30/31 in a Bloomberg survey) pencilled in an on-hold decision for this meeting.

• The central bank said that the rate hike was meant to strengthen rupiah stabilisation and was a pre-emptive, forward-looking move intended to prevent potential imported inflation. Bank Indonesia will continue to stabilise the rupiah through its triple intervention scheme.
• Governor Warjiyo said that the central bank expects Fed interest rates to remain higher for longer, while USD appreciation translates into weakness across the remainder of the FX space.
• According to Bank Indonesiia, inflation remains under control within the +2%-4% Y/Y target range. The central bank wants to ensure that it remains manageable within that range this year.
• Meanwhile, Bank Indonesia said it would lower some macroprudential liquidity buffer ratios in a bid to support economic growth.