Indonesia's central bank raised its key rate by a quarter point to stabilize the rupiah amid worsening current account deficit and turmoil in Turkey.
The Board of Governors lifted the 7-day reverse repo rate to 5.50 percent from 5.25 percent, Bank Indonesia said Wednesday.
In a statement, the bank said the decision was in consistent with efforts to maintain the attractiveness of the domestic financial market and control the current account deficit within a safe limit.
The central bank has raised the rate by a cumulative 125 basis points since May.
The current account deficit surged to $8 billion in the second quarter. The trade data, released Wednesday, showed that the deficit widened to $2 billion on higher imports in July.
The rupiah came under intense pressure amid worsening current account deficit and the crisis in Turkey.
Even if the crisis in Turkey starts to fades, Gareth Leather, an economist at Capital Economics, said a combination of rising US Treasury yields and the escalating trade war between the US and China, will keep the rupiah under downward pressure.
Joey Cuyegkeng, an ING economist said, a combination of monetary tightening and government measures could eventually address a couple of the drivers of the currency weakness - the weak external payments condition and strong domestic demand.
Bank Indonesia forecast 2018 overall economic growth to remain in the range of 5.0-5.4 percent, before rising to 5.1-5.5 percent in 2019.
Inflation has remained low and it is expected to remain within the target range of 2.5 percent to 4.5 percent this year.
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