The Indonesian rupiah slipped against its US peer on Thursday after the central bank pulled the trigger on a surprise interest rate cut. Although officials maintained an optimistic outlook on the national economy, policymakers decided it was time to raise rates.

The Bank of Indonesia reduced the benchmark seven-day reverse repo rate by 25 basis points to 3.75% at the November policy meeting. The central bank also eased its other key rates, which also defied market forecasts. The lending facility rate was lowered from 4.75% to 4.5%, while the deposit facility rate declined from 3.25% to 3%.

But Bank of Indonesia officials did highlight an optimistic outlook for the domestic economy in the aftermath of the coronavirus pandemic.

The central bank said in a statement:

The decision is based on projected low inflation, maintained external stability as well as follow-up policy measures to expedite the national economic recovery.

Global economic improvements have continued after recording stronger growth in the third quarter of 2020. At home, domestic economic growth is rebounding in line with increasing fiscal stimulus realisation and greater public mobility together with stronger global demand. Economic growth in Indonesia rebounded to 5.05% (qtq) in the third quarter of 2020 after contracting 4.19% (qtq) in the previous period, thereby reducing the contraction annually to 3.49% (yoy) from 5.32% (yoy).

So, why would the Bank of Indonesia raise interest rates? Inflation appears to be a concern for policymakers, with the consumer price index (CPI) rising at an annualized rate of 1.44% in September, up from 1.42% at the same time a year ago.

In other data, automobile sales crashed 49% year-over-year in October. The property price index rose 1.5% year-over-year in the third quarter.

The USD/IDR currency pair rose 0.6% to 14,155, from an opening of 14,070, at 21:14 GMT on Thursday. The EUR/IDR climbed 0.83% to 16,820, from an opening of 16,678.