Indonesia acts to stem rupiah’s plunge

Raised Fasbi to 4.25% yesterday.

Bank Indonesia raised the Fasbi or the rate it pays lenders on overnight deposits and said it’s ready to buy government debt in the secondary market. New BI Governor Agus Martowardojo said the move intends to boost confidence in the rupiah.

The central bank raised the deposit facility rate by a quarter of a percentage point to 4.25% effective yesterday. It said the increase is a preemptive step to maintain stability after the rupiah weakened.

Bank Indonesia said it is fully prepared to take necessary measures to stabilize monetary conditions in light of recent rupiah depreciation.

Indonesian policy makers are struggling to contain the rupiah’s plunge as a delay in fuel-subsidy cuts hammered investor sentiment. Indonesia’s currency reserves fell as the central bank sold dollars.

Rupiah forwards, which weakened to the lowest in more than three years this week, rose yesterday following the decision along with stocks and government debt.