Indonesia hiked interest rates again Thursday as weak trade data and a slumping currency prompted the central bank to boost borrowing costs for the sixth time this year. Bank Indonesia surprised analysts as it raised the key lending rate by 25 basis points to 6.0 percent, its latest policy move as the country tries to shield the slumping rupiah.
Earlier Thursday, Indonesia reported a worse-than-expected $1.8 billion October trade deficit, putting pressure on the country's current account. "This decision marks the central bank's further measures to strengthen efforts to reduce the current-account deficit to a safe level," bank governor Perry Warjiyo told reporters. Indonesia has said it would slap higher taxes on imports and delay or restructure import-dependent infrastructure projects as part of a bid to tackle a growing deficit in the current account, a broad measure of its trade with the rest of the world.
The rupiah slumped to levels last seen during the late-1990s Asian financial crisis, although it recovered some ground in recent weeks. A weaker rupiah makes it more expensive to buy imported goods or repay debts in other currencies. Investors have been dumping emerging market currencies, including the rupiah, as rising US rates prompt them to flock to dollar-denominated assets in search of better returns.
"Although the rupiah has rebounded a little against the dollar in recent weeks, the recent widening of the current account deficit and the continued surge in imports clearly appears to have unnerved the central bank," Alex Holmes, economist at research house Capital Economics, said in a report.
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