KONTAN.CO.ID - JAKARTA. Indonesia's central bank raised its key policy rate on Thursday, its fifth rate hike since August and widely expected by markets, as it aims to bring inflation back within target next year.

Bank Indonesia (BI) hiked the benchmark 7-day reverse repurchase rate by 25 basis points (bps) to 5.50%, as expected by the majority of economists polled by Reuters.

With Thursday's move, Bank Indonesia has lifted rates by 200 basis points in the current tightening cycle, making it the most aggressive since 2005.

The inflation rate in Southeast Asia's largest economy jumped in September to a seven-year high of 5.95%, after the government raised subsidised fuel prices early that month.

Inflation has since cooled, but November's rate of 5.42% remained above the central bank's 2% to 4% target range.

Warjiyo on Wednesday said headline inflation was expected to stay around 5.4% in December and come down to 3% at the end of next year.

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The rupiah was slightly lower after the announcement. It has fallen around 9% against the dollar this year, with the U.S. currency buoyed by the Federal Reserve's aggressive monetary tightening.

Bank Indonesia Governor Perry Warjiyo has said he expected the rupiah to strengthen next year, predicting global financial markets would be less volatile once major central banks are done with their monetary tightening.

On Thursday he said the central bank's outlook had a bias towards the upper end of a 4.5% to 5.3% range for gross domestic product growth in 2022, with GDP growth seen in the middle of that same band in 2023, while pressure on the rupiah had eased in November and December.

Editor: Yudho Winarto