By Ying Xian Wong

Indonesia's central bank delivered its first rate hike of the year, defying broad projections for a hold as it looks to support a tumbling rupiah.

Bank Indonesia on Wednesday raised its benchmark seven-day reverse repo rate by 25 basis points to 6.25%, tightening policy settings for the first time since October last year.

The bank also raised its overnight deposit facility rate and lending facility rate by 25 basis points each to 5.50% and to 7.0% respectively.

Speculation had been high heading into the meeting, with analysts saying the decision would be tough to call. Consensus estimates had been pointing to a hold but some economist were betting on a hike.

Five out of seven economists polled by The Wall Street Journal had expected the decision, while the other two had pencilled in a 25-basis-point hike.

The decision comes as Bank Indonesia, like many of its peers in the region, grapples with currency pressure, led by a strong dollar and delayed expectations for rate cuts by the Federal Reserve.

That poses a dilemma for policy makers as they look to stabilize currencies while sustaining economic growth. Most banks in Southeast Asia have continued to hold rates steady as they watch to see how inflation and currency pressures unfold. Notable exceptions in Asia include Taiwan and Japan.

BI's hike is aimed at bolstering the rupiah as it languishes around four-year lows versus the greenback, down over 5% so far this year. Officials had recently expressed concern about the currency's fall and vowed to steady it.

BI has raised rates in past periods of currency instability but there is doubt among economists about the effectiveness of the measure.

A 25-basis-point hike will likely not be enough to steady the rupiah, OCBC economists said.

The global backdrop remains volatile and concerns over Indonesia's growth may soon start to take precedence, with the economy tipped to slow and exports underperforming those of regional peers, OCBC Asean economists Lavanya Venkateswaran and Ahmad A Enver said in a note.

Still, DBS economists said a pre-emptive hike could serve to instil confidence and build in a rate advantage for the rupiah.

More dollar strength and a potential rise in inflation will likely keep BI on alert, necessitating a hawkish stance, DBS senior economist Radhika Rao said in a note.

Write to Ying Xian Wong at

(END) Dow Jones Newswires

04-24-24 0353ET