Indonesia’s central bank caught markets off guard with a surprise rate cut, upending expectations that it would keep policy settings on hold to help stabilize the rupiah.

Indonesia’s central bank defied the expectations of practically the entire market when it cut interest rates this week, deepening a period of uncertainty for government bond yields. Most Read from BloombergThese Homes Withstood the LA Fires.

Indonesia's central bank said the rupiah's fall against U.S. dollar was still under control, after the currency slid to its weakest level in more than six months on Thursday following a surprise cut in interest rates the day before.

It also comes just three months after President Prabowo Subianto took office with an ambitious goal of boosting growth to 8 per cent in the next five years. Indonesia has been growing at a steady rate of 5 per cent over the previous decade, except for during the Covid pandemic.

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Indonesia unexpectedly reduced its key interest rate in its first monetary policy decision this year, moving to bolster economic growth even after the local currency recently weakened beyond the key level of 16,

Bank Indonesia (BI) slashed its benchmark interest rate by 25 basis points to 5.75 per cent, defying market expectations and signalling a shift in focus towards revitalising South-east Asia’s largest economy amid signs of a slowdown.