Indonesia central bank delivers another 50-bp hike

JAKARTA  – Indonesia’s central bank raised its key interest rate by 50 basis points for a third consecutive monthly meeting as it sought to rein in inflation expectations while supporting the rupiah.

Bank Indonesia (BI) raised the 7-day reverse repo rate to 5.25 percent, as expected by the majority of economists polled by Reuters. It also raised its other policy rates by the same amount.

BI Governor Perry Warjiyo told an online news conference that the central bank would strengthen monetary policy response to lower inflation expectations.

The “front-loaded, pre-emptive, forward-looking” measure was made to guide core inflation back within target in the first half of 2023, and also step up support for the rupiah, he said.

With Thursday’s move, BI has increased interest rates by a total of 175 bps since August, matching the scale of its last tightening cycle in 2018.

The rupiah was largely unchanged after the decision. It has fallen nearly 9 percent against the dollar in volatile trading in recent months, as the greenback has been buoyed by the Federal Reserve’s aggressive monetary tightening.

While Indonesia’s inflation rate eased to 5.71 percent in October, it remained above the BI’s 2-4 percent target range for the fifth straight month and near a seven-year high of 5.95 percent.

Some economists expect inflation to accelerate further towards the end of the year, after the government raised subsidised fuel prices by about 30 percent in September.

BI has said core inflation – running at 3.31 percent in October – would rise above 4 percent by the end of this year or early 2023.

The bank’s decision came after data showed Indonesia’s economy expanded 5.72 percent from a year earlier in the third quarter, the fastest pace in over a year.