JAKARTA, Aug 13 (Reuters): The Indonesian rupiah hovered near a two-month high on Friday amid expectations the central bank will adopt an aggressive approach to combat inflation, while the Malaysian ringgit firmed as robust economic growth lifted market sentiment.
Among other regional currencies, the Singapore dollar and the Taiwan dollar were flat. The Indonesian rupiah scaled to its highest since June 13 to trade at 14,670 against the dollar.
The currency has witnessed a recovery since June lows, firming more than 1% so far this month as the economy remains on track for a recovery.
With inflation and the prospect of a global recession, which could draw money away from riskier assets, there are expectations that Bank Indonesia (BI) could raise its interest rate as it is one of the last countries in the region yet to tighten their pandemic-era loose policy.
"Indonesia's terms of trade have looked increasingly attractive over recent months, offering support to its current account position and the rupiah," analysts from TD Securities said in a research note.
Analysts at Citi and OCBC are expecting the BI to raise its benchmark seven-day reverse repurchase rate in a meeting later this month, with Citi seeing a 25-basis-point hike.
However, Maybank and ANZ do not see the central bank rushing to tighten. The Malaysian ringgit saw a marginal rise despite strong data, as the central bank flagged that slowdown in global growth is expected to pose a risk to the country's outlook for the rest of 2022.
Analysts from Barclays expect the Malaysian central bank to continue its path of rate tightening amid growth optimism.
"While Bank Negara Malaysia (BNM) has already increased the policy rate by 50 bps in the current cycle, the resilience of the growth recovery could push BNM to continue tightening," Barclays analysts wrote.
Markets across the region were volatile, with stocks in Singapore, Indonesia and China falling between 0.1% and 1%, while equities in the Philippines and Malaysia were up 0.3% each.
Globally, investors remained on the back foot, as investors digested the need for a continuous boost in interest rates to temper down elevated price pressures, despite a softer-than-expected CPI reading on Thursday. Thai markets were shut on account of a public holiday. - Reuters