Indonesia' central bank hiked its policy rate by 25 basis rates as it seeks to strengthen the local currency that has plummeted to record lows.

The surprise increase brought the 7-day reverse repo rate to 5.5% from 5.25%. Economists polled by Reuters had estimated the country to hold rates.

Besides mitigating the impact of Middle East conflict, the central bank said the move was also a "pre-emptive measure" to maintain inflation within the government's target range of 1.5% to 3.5% in 2026 and 2027.

"The measure also aims to enhance yields to attract foreign portfolio investment inflows to Indonesia," the statement added. Investors have fled Jakarta's equity markets since the start of the year, with the Jakarta Composite tumbling over 35% year to date.

Bank Indonesia has been trying to shore up the currency and delivered a larger-than-expected 50 basis points hike in its meeting in May, as well as intervening in the forex markets.

None of those appear to have helped, with the rupiah weakening against the dollar to a record 18,190 on June 8 despite Jakarta reportedly draining its forex reserves to prop up the rupiah.

On a year-to-date basis, the rupiah has deprecated over 8% against the greenback.

The surprise hike also comes as Indonesia sees its inflation figures start to creep up again. The latest reading from May showed inflation in the country at 3.08%, up from 2.42% and marginally higher than the 2.97% expected.