The Indonesian central bank surprised Forex traders as it raised its interest rates yet again. But the rupiah did not react to the news and was flat versus the US dollar and fell against the euro.
The Bank Indonesia raised its main interest rate by 25 basis points to 7.50 percent, while the Lending Facility rate and Deposit Facility rate were increased to 7.50 percent and 5.75 percent respectively. The central bank explained its reasoning for such decision:
This policy was taken in light of the persistently large current account deficit amid widespread global uncertainty. Therefore, the decision was taken in order to ensure that the current account deficit is reduced to a more sound level and inflation in 2014 returns to around 4.5±1%, thereby supporting sustainable economic growth.
It was the fifth unexpected increase of borrowing costs since Governor Agus Martowardojo took central bank’s leadership in May. It looks like the Governor is ready to tolerate slower growth if higher rates could reduce the current-account deficit.
USD/IDR traded flat at 11,595. as of 6:41 GMT today after rising to 11,645 earlier. EUR/IDR was up from 15,576 to 15,641.
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