With today’s rate hike, Bank Indonesia has raised its benchmark interest rate by 1.75 percentage point since last May.
Policy makers said that the decision was taken to ensure that the current account deficit comes back to balance and inflation remains under control in 2014 to 4.5 ± 1 percent.
In the second quarter of 2013, the current account deficit widened to a record 4.4 percent of the GDP. However, the gap is expected to decline to 8.4 billion USD in the September quarter compared to nearly 10.0 billion USD in the previous three-month period, mainly due to an improvement in the trade surplus of non-oil commodities, while non-oil imports declined due to the slowdown in domestic demand.
The central bank also decided to raise both the deposit facility and the lending facility rates by 25 bps to 5.75 percent and 7.5 percent, respectively.