Indonesia's central bank on Friday raised interest rates for the third time in six weeks as it moves to shield the rupiah from a selloff in emerging market currencies. Bank Indonesia raised its key rate to 5.25 percent from 4.75 percent. The rupiah has slid more than five percent against the dollar this year to below 14,000 - its lowest level since 2015.
Rising US interest rates are prompting investors to sell the rupiah and other currencies to buy dollar-denominated assets in search of better returns. "The rate increase comes against a backdrop of continued weak economic growth and subdued inflation, and clearly indicates the main focus of the central bank is boosting the rupiah," said Gareth Leather, senior Asia economist at research house Capital Economics.
While the latest move may offer respite to the depreciating currency, raising borrowing costs could stifle efforts to boost the economy's sluggish growth rates. In a bid to rev up Southeast Asia's biggest economy, the central bank had been repeatedly slashing borrowing costs over the past year and a half until it reversed course in May. Indonesia is targeting annual growth of seven percent, but the commodities-driven economy has remained stuck in the 5.0 percent range.
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