JAKARTA: Indonesia's central bank board will meet on Thursday in an unexpected move amid widespread speculation that it may soon have no choice but to raise interest rates again to defend the fast falling rupiah, now at its lowest since April 2009.
Indonesia's financial markets have been savaged by the wider turmoil hitting emerging markets on fears that the US Fed will soon start cutting back on what has been years of cheap funds heading to their higher yielding, but riskier assets.
"We will hold an additional board of governors meeting to evaluate the progress of the current economic situation. The results will be announced to the press," spokesman for Bank Indonesia, Peter Jacobs, told Reuters on Tuesday.
He did not elaborate. Normally, the board of governors meets just once a month, when it decides on the benchmark interest rate. The last such meeting was on Aug. 15 when it kept the rate at 6.5 percent but lowered the upper band of its loan-to-deposit ratio and increased the secondary reserve requirement.
However, those moves, coupled with a range of fiscal and monetary measures announced last Friday, have done little to instill investor confidence in Southeast Asia's biggest economy because of a widening current account deficit, surging inflation and slowing economic growth.
The rupiah fell 0.6 percent against the dollar on Tuesday, taking losses so far this year to nearly 12 percent. Indonesia's main benchmark stock index tumbled 3.7 percent and has now lost more than 20 percent from its highs in May.
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"BI is trying to anticipate a further correction in financial markets which may weaken the economic situation. And it requires another tightening monetary adjustment by raising its benchmark rate at least 25 basis points," said Arga Samudro, economist at Bahana Securities in Jakarta.
"Also, there is a possibility that BI will issue technical rules for the previously announced regulations."
Indonesia natural-resource heavy exports have been hit by tumbling prices and slower demand in key markets such as China.
The government wants to shift the emphasis for economic growth more towards domestic consumption but that is proving to be tough in the face of sharply higher inflation.
The government will announce August inflation and July trade figures on Monday.
Indonesia and India, which has been suffering a similarly sharp sell-off, are not at immediate risk of credit rating downgrades, rating agency Fitch said last week, but it warned it could act if the countries' governments fail to calm current financial market tensions.
The Indian rupee hit a record low and shares slumped on Tuesday on renewed doubts about the government's resolve to control spending ahead of elections due next year.
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