Commerzbank’s Charlie Le reports that Bank Indonesia kept the BI rate at 5.75%, choosing targeted capital-flow stimulus over further tightening to support the Indonesian rupiah. The BI cut hedging costs and improved macroprudential liquidity tools, replicating the RBI’s strategy. Note that the decline in USD/IDR provides some breathing space, but cautions that the Rupee is still weak and a 25bp gain later this year cannot be ruled out.
Capital-flow tool to bring back Rs.
“Bank Indonesia (BI) left the BI rate unchanged at 5.75%. In a Bloomberg survey, analysts were evenly divided, with a slight majority expecting a 25bp hike. This was on the view that BI would continue to hike to support the currency and boost investor confidence.”
“The Indonesian rupiah (IDR) has come under pressure this year amid higher oil prices and growing concerns over fiscal discipline and policy credibility. Governor Perry Warjiyo acknowledged that another rate hike is under consideration. However, the Board expressed concern over the negative consequences on domestic borrowing costs and consumption, especially given that it has already risen by 100bp in two months.”
“Instead, the BI chose to leave rates unchanged and rely on targeted fiscal stimuli to attract foreign capital and support the rupee. This strategy reflects the Reserve Bank of India’s approach of supporting the currency through capital-flow measures rather than relying solely on higher policy rates.”
“The recent fall in USD/IDR from above 18,200 to 17,900 has given some relief to BI, but the rupee is unlikely to come out of trouble. Sustained recovery will still depend on strong policy credibility and continued foreign capital inflows.”
“Higher oil prices, renewed safe-haven demand for the US dollar, and concerns over fiscal management remain key risks. Although BI has held off for now, a rate hike of 25 bps later this year cannot be ruled out if depreciation pressures re-emerge.”
(This article was created with the help of an artificial intelligence tool and reviewed by an editor. know more.)
