Bank Indonesia (BI) on Wednesday raised interest rates to their highest level in seven years.
Economists predicted the central bank to hold the seven-day reverse repurchase rate at 6% but it instead raised 25 basis points to 6.25%, a level not seen since 2016.
Speaking at a press conference the same day, Bank Indonesia Governor Perry Warjiyo said the interest rate increase is to strengthen the rupiah's exchange rate stability against the possibility of worsening global risks.
Perry said the move was a pre-emptive and forward-looking step to ensure inflation remains within the bank's 1.5-3.5% target range. It is currently at 3.05%.
Economists said if the rupiah continued to slide, Bank Indonesia would likely tighten further.