Bank Indonesia raised its benchmark interest rate by 25 basis points to 5.50% in an unscheduled move Tuesday, aiming to halt the rupiah's slide to fresh record lows.
The central bank said the rupiah has weakened more than expected since its last meeting, dropping 8% this year and 7% since the Iran war began, making it one of the world's worst-performing currencies. The currency briefly strengthened to 18,075 per dollar after the decision, a day after hitting an all-time low of 18,190.
Despite a larger-than-expected 50-basis-point hike in May and a $12 billion drawdown in forex reserves to $144.9 billion-the lowest in nearly two years-the currency had continued to fall. Pressure stems from President Prabowo Subianto's ambitious spending plans, a ballooning fuel subsidy budget following the Iran war, and doubts about central bank autonomy.
Barclays expects another 25-basis-point hike at next week's scheduled meeting, with a possible 50-basis-point move. BI Governor Perry Warjiyo told parliament the bank would continue intervening in forex markets and projects the rupiah at 16,800 to 17,500 per dollar by 2027.