* Benchmark rate raised 25 basis points to 5.50 pct
* Rupiah strengthens after rate decision announced
* July trade deficit biggest in 5 yrs, imports at all-time high
* Govt says it will impose tariffs on 500 imported consumer goods (Adds rate decision, senior government official)
By Maikel Jefriando and Nilufar Rizki
JAKARTA, Aug 15 (Reuters) - Indonesia’s central bank stepped up its battle to defend a beleaguered currency on Wednesday, raising interest rates for the fourth time since mid-May on top of government import curbs as Turkey’s financial crisis ripples across emerging markets.
Bank Indonesia (BI) raised its benchmark interest rate by 25 basis points to 5.50 percent, as expected by 7 of 19 analysts in a Reuters poll. The move gave the rupiah a leg-up.
The central bank had intervened in the currency market earlier on Wednesday as the rupiah hit 14,646 to the dollar, its weakest since October 2015.
“The reason for the rate hike is to maintain the attractiveness of our domestic financial market, in that we want yields... to remain attractive despite rising risk premiums and that could trigger inflows,” BI Governor Perry Warjiyo told a news conference.
Worse-than-expected domestic data has exacerbated concerns about Indonesia’s economy, with data on Friday showing the current account deficit at its highest in nearly four years.
Indonesia on Wednesday also reported July’s trade deficit at $2 billion, the biggest in five years and more than triple what economists expected as the import value hit a record high.
“Even if the crisis in Turkey starts to fade, we think a combination of rising U.S. Treasury yields and the escalating trade war between the U.S. and China, will keep the rupiah under downward pressure,” Capital Economics said in a note. “The upshot is that today’s rate hike is unlikely to be the last in the current cycle.”
After an emergency cabinet meeting on Tuesday, one senior government official said “Basically, it’s just fear of domino theory: first it’s Argentina, then Pakistan, then Turkey.”
The official, who described the meeting as “tough and heated”, said “I actually believe we should be nervous.”
He said the Indonesian government was concerned to see the speed with which financial turmoil in Turkey could be triggered in this case by sanctions and tariffs slapped on Ankara by Washington.
Warjiyo said BI will monitor developments in Turkey, although he sought to reassure markets, saying Indonesia’s economy was resilient and imports were up due to improving economic activity.
Between mid-May and the end of June, BI hiked interest rates three times totalling 100 basis points, including at an off-cycle meeting and spent billions of dollars to support the currency. It kept rates steady at its July meeting.
Finance Minister Sri Mulyani Indrawati reiterated the government’s commitment to reduce external deficits, though said authorities would try to make sure that “economic growth does not face a huge disruption” as it takes “corrective” measures to support the rupiah.
On Tuesday, Indrawati announced a plan to impose a 7.5 percent import tax on about 500 goods that Indonesia can produce locally.
The list, which is not finalised yet, will focus on semi-durable and perishable goods, including luxury consumer goods used by hotels and restaurants, the senior government official said.
Also, Indrawati said state energy companies will be asked to use more locally-made goods for their projects and delay those that require large imports.
Starting September, the government will also widen the use of biodiesel and expect to slash oil imports by $2.3 billion.
Acknowledging its measures may hurt growth, BI cut its outlook for 2018 GDP growth to 5.0-5.4 percent from 5.1-5.5 percent, despite a better-than-expected 5.3 percent growth print in the second quarter.
Separately, the Financial Services Authority announced a series of lending rules easing aimed at getting banks to lend more to property and tourism to “keep the economic growth momentum” and spur sectors that could generate foreign exchange.
BI complemented its rate hike with market deepening efforts such as regularising foreign exchange swap auctions to provide swap for liquidity management daily. It also plans to open lines for banks to reswap contracts in U.S. dollars, euro, yen and yuan that they offer to corporate clients.
These measures appear aimed at prodding exporters to release dollar earnings to the market, with a foreign exchange trader in Jakarta noting BI was the sole supplier of dollars in the onshore market.
“Exporters are not selling their dollars and there are no inflows from investors,” the trader said. (Additional reporting by Fransiska Nangoy, Tabita Diela, Maikel Jefriando and John Chalmers; Writing by Gayatri Suroyo; Editing by Ed Davies and Richard Borsuk)