BI Bolsters Rupiah Stability with Interest Rate Hike to 6.25 Percent

Jakarta – Bank Indonesia (BI) raised its benchmark interest rate by 25 basis points to 6.25 percent from the last hike in October 2023.

"Bank Indonesia decided to raise the Interest Rate by 25 basis points to 6.25 percent," Bank Indonesia Governor Perry Warjiyo said in a statement on Wednesday.

Warjiyo said, with the increase in the benchmark interest rate, the deposit facility rate rose by 25 bps to 5.5 percent, and the lending facility rate increased by 25 basis points to 7 percent.

The latest decision comes amid a weakening rupiah, which hit a four-year low last week.

The currency has stayed near that low, at around 16,000 per dollar. The dollar's strength and bets that the U.S. Federal Reserve will delay interest rate cuts are putting downward pressure on the rupiah, as quoted from Nikkei Asia site.

Warjiyo also remarked the bank expects the rate increase to stabilize the rupiah at 16,200 for the remainder of the second quarter, and strengthen to 16,000 in third-quarter, reaching 15,800 in the fourth quarter.

The rupiah extended its gains after the announcement to 16,140 against the dollar from 16,165 before the news conference.

"We continue to ensure rupiah stability is maintained with foreign exchange intervention and other necessary measures," Warjiyo stated.

Inflation is also a factor in the rupiah's weakness. Data from Statistics Indonesia showed annual inflation hit 3.05 percent in March, up from 2.75 percent the previous month.

The government, meanwhile, is aiming for growth of 5.2 percent this year.