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The Indonesian central bank stepped up its action with a higher interest rate hike than expected – the third increase in six weeks – to halt a decline in the currency.
The seven-day reverse repurchase rate was raised by 50 basis points to 5.25% yesterday, surprising all 31 economists surveyed by Bloomberg, most of whom predicted a 25 basis point increase.
"The decision to increase the interest rate is another Bank Indonesia (BI) preventive, prior and anticipated measures to maintain the competitiveness of domestic financial markets as a result of changes in monetary policy in a number of countries and strong uncertainties in the financial markets, "said Governor Perry Warjiyo
. While inflation remains moderate and comfortably in line with the 2.5% to 4.5% target set by the central bank, policymakers are resolutely focused on stabilizing the currency against a backdrop of rising inflation. emerging markets. The rupee continued to lose ground against the dollar, falling to 14,415 yesterday to more than 5% this year.
Indonesia was one of the hardest hit in Asia by emerging market recessions. a rise in the greenback and US interest rates. This has seen other central banks take steps to counter an exodus of capital. The central bankers from Turkey to India have increased their rates in order to avoid a major crisis.
The rupee gained up to 0.6% against the dollar after the decision on rates, while the Jakarta composite index jumped 2.3%. Sovereign 10-Year Government Bond yields dropped 8 basis points to 7.82%, bringing the growth rate to 150 basis points this year
"The 50-basis-point surprise underscores the Governor's determination Warjiyo to take the lead and stem the pressure of depreciation on the rupee, "says Khoon Goh, director of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore.
" There should be no doubt in the Market spirit on the determination of the new governor to increase further if necessary to defend the rupiah. "
To move forward, Bank Indonesia will continue to monitor national and global economic developments and prospects, so strengthen future responses to the policy mix.The loan-to-value ratio for goods has been eased in order to maintain the momentum of the national economic recovery and the stability of the system. Global uncertainty also stems from reduced European Central Bank asset purchases, lower reserve requirements, rising oil prices and deteriorating trade relations between Member States. United States and China
. "Warjiyo says that political action is backed up by intervention in the foreign exchange and bond markets to ensure sufficient liquidity.At the end of January, the central bank drained US $ 9 billion from its reserve of foreign exchange.
The aggressive movement also increases the risks for Indonesian economic growth by 5%, well below the 7% targeted by President Joko Widodo when he took office. Yesterday measures to loosen the loan-to-value ratios to stimulate lending and support the recovery of the economy.
"The rupiah is really worrying right now and they realized that the volatility of the exchange rate more disruptive to the Indonesian economy than rising short-term interest rates, "says David Sumual, chief economist at PT Bank Central Asia in Jakarta. – Bloomberg
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