Bank Indonesia Signals More Hawkish Stance Ahead of Key Fed Meet

  • Indonesia’s central bank adopted a more hawkish tone, signalling it’s ready to strike early to temper volatility in the rupiah and bond yields as global markets sell off in anticipation of U.S. rate hikes.
  • “The principle we will conduct with is what we call a preemptive, ahead-of-the curve, front-loading policy,” Deputy Governor Dody Budi Waluyo said. “We will sequence all measures based on exchange-rate stability, liquidity management, and interest rate policy.”
  • The central bank would act depending on the latest inflation and rupiah development. “If there’s no risk, we will keep our interest rate as today,” he added.
  • Bank Indonesia has kept its benchmark interest rate at a record low 3.5% since Feb 22, with Warjiyo saying the rate will remain unchanged until there are signs of rising inflation, which isn’t expected until 3Q22.
  • The yield on Indonesia’s benchmark 10-year bonds were at 6.4% on 26 Jan 22, having climbed almost 40 basis points from its Nov 21 low. Still, that’s a far cry from the highs of 8.9% in 2018 during the last Fed hike cycle.

External Link :