Indonesia central bank hikes rates as Turkey crisis bites

Indonesia central bank hikes rates as Turkey crisis bites
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JAKARTA: Indonesia’s central bank hiked interest rates Wednesday in a bid to shield the slumping rupiah from a selloff in emerging market currencies as Turkey’s financial crisis roils global markets.

Bank Indonesia raised its benchmark rate to 5.50 percent from 5.25 percent, its fourth hike since May, after the rupiah this week dropped to its lowest level against the dollar since 2015.

Investors have been dumping emerging market currencies, including the rupiah, as rising US interest rates prompt them to flock to dollar-denominated assets in search of better returns.

But a plunge in the Turkish lira has sent shivers through global markets and heaped more pain on emerging units.

Concerns about the health of Turkey’s economy were already pressuring the lira, which slumped on Friday and Monday as US President Donald Trump announced Washington was ramping up aluminium and steel tariffs.

Indonesia’s central bank said its latest rate hike was partly driven by the Turkey crisis.

“We are closely watching what’s happening in Turkey,” bank governor Perry Warjiyo said after the rate announcement.

“Global economic uncertainty has been rising due to the …turmoil in Turkey.”

The rupiah slumped to its lowest point since 2015 on Monday after Indonesia reported its biggest current account deficit in nearly four years. The current account is a broad measure of a country’s trade with the rest of the world.

The rupiah was trading at 14,576 against the dollar Wednesday, down more than seven percent since the start of the year.

Agence France-Presse