Image from Vietnam News/ANN
HANOI (Vietnam News/ANN): Bank Indonesia (BI) on April 24 raised interest rates to their highest level in seven years.
Economists predicted the central bank to hold the seven-day reverse repurchase rate at 6% but it instead raised 25 basis points to 6.25%, a level not seen since 2016.
Speaking at a press conference the same day, Bank Indonesia Governor Perry Warjiyo said the interest rate increase is to strengthen the rupiah's exchange rate stability against the possibility of worsening global risks.
Perry said the move was a pre-emptive and forward-looking step to ensure inflation remains within the bank's 1.5-3.5% target range. It is currently at 3.05%.
Economists said if the rupiah continued to slide, Bank Indonesia would likely tighten further.
Bloomberg reported that the heightened external risks that are beyond Bank Indonesia’s grip may make it tough to call its April’s rate hike as one-and-done, according to economists.
Its currency remains vulnerable in the face of an unclear Federal Reserve rate path and elevated geopolitical tensions, coupled with corporate dollar demand for dividends and debt payments. Governor Perry Warjiyo’s rupiah guidance - that it will likely average 16,200 per dollar this quarter - reflects those risks.
BI’s unexpected rate hike to 6.25% on Wednesday, paired with incentives to boost lenders’ liquidity to keep ramping up credit, risks impairing the effectiveness of the central bank’s policy tools. The rupiah fell on Thursday, along with many Asian currencies.
"The decision to tighten the monetary policy while at the same time loosening the macroprudential policy may deprive the market of a clearer policy signal,” economists in PT Bank Central Asia in Jakarta said. - Vietnam News/ANN
