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Indonesia Raises Key Rate Unexpectedly For Sixth Time

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Indonesia's central bank hiked its key interest rate unexpectedly in November, after leaving unchanged in October following two hikes, as it tries to lower the country's current account deficit.

The Board of Governors hiked the 7-day reverse repo by 25 basis points to 6 percent, Bank Indonesia said on Thursday.

Economists had expected the rate to remain unchanged this month.

Previously, the bank hiked the rate by a quarter-point each, both in August and September. The bank has raised the rate by a cumulative 175 basis points in six sessions thus far this year.

"The decision reflects Bank Indonesia's ongoing efforts to lower current account deficit within a manageable threshold," the bank said.

"The policy rate hike is also aimed at strengthening the attractiveness of domestic financial markets by anticipating global policy rate hike in the next few months."

On Thursday, the bank also raised the average reserve requirement from 2 percent to 3 percent.

The bank aims to reduce the current account deficit to around 2.5 percent of GDP in 2019. The deficit was 3.37 percent of GDP in the third quarter.

A growth surge of imports destined to government infrastructure projects enlarged the current account deficit, the bank noted.

Earlier on Thursday, official data showed that Indonesia's trade deficit in October at $1.8 billion was the second worse since April 2014.

"We expect that BI's support for IDR will continue while offsetting the negative impact of the current account deficit on the currency," ING Bank economist Joey Cuyegkeng said.

"We expect BI to hike policy rates by at least another 50bps over the policy horizon."

Bank Indonesia also forecast its growth for this year at 5.1 percent versus its October projection that growth will be at the lower end of 5.0-5.4 percent range.

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