Bloomberg
Published Nov 15, 2018 19:10
Updated Nov 15, 2018 19:55
Indonesia Surprises With Rate Hike After Trade Gap Widens
(Bloomberg) -- Indonesia’s central bank unexpectedly raised its benchmark interest rate for a sixth time this year to help rein in a widening trade deficit and bolster the currency.
The seven-day reverse repurchase rate was raised by 25 basis points to 6 percent on Thursday, surprising most economists who had predicted no change. That takes the cumulative rate hikes since May to 175 basis points, making Bank Indonesia one of the most aggressive central banks in Asia this year.
“This decision is part of Bank Indonesia’s further measures to strengthen the efforts to lower the current-account deficit until it reaches the safe level,” Governor Perry Warjiyo told reporters. “The increase in the interest rate is also expected to boost the attractiveness of domestic financial assets and to anticipate global interest rate hikes in the coming months.”
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Market Reaction
The rupiah jumped as much as 0.8 percent against the dollar to reach a one-week high of 14,665. The Jakarta Composite Index extended gains to as much as 1.5 percent after the decision.
Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore, said the widening in the current account deficit in the third quarter and a larger-than-expected trade deficit in October likely prompted Bank Indonesia to “front-load” what he expected to be a hike in December. “The governor is clearly still in pre-emptive mode,” he added.
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(Updates with comments from governor.)
Written By: Bloomberg
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