Bank Indonesia says off-cycle rate hike is a ‘small possibility’
INDONESIA’S central bank is not ruling out an out-of-cycle rate increase, after the only analyst who predicted its surprise hike last week called for such a move and the neighbouring Philippines’ unscheduled tightening this week.
“As a possibility, it is always there even if it is very small,” Bank Indonesia’s (BI) spokesperson Erwin Haryono said late Thursday (Oct 26) after the Philippines delivered a 25-basis-point unscheduled rate hike. “But so far, the policy response delivered during the latest Board of Governors’ meeting is sufficient.”
PT Bahana Sekuritas, the only one out of 31 to predict that BI would raise its benchmark rate to 6 per cent last week, is now saying the central bank “could and most likely would” tighten further. That may even happen earlier than the next scheduled meeting on Nov 23, its analysts said.
“Should the rupiah weaken again, we believe there is some probability BI might resort to the option of hiking interest rates outside its regular monthly meeting – which it did in August 2013 and May 2018,” Bahana’s Satria Sambijantoro and Drewya Cinantyan wrote in a note. Further rate increase is necessary as central bank intervention may not be sustainable, they added.
Emerging Asian currencies are buckling under the pressure of the surging US dollar as US Treasury yields continue to climb, pressuring regional central banks to take bolder tightening steps.
Bangko Sentral ng Pilipinas raised its key rate to 6.5 per cent in an off-cycle move on Thursday, with governor Eli Remolona saying the central bank “fell a little bit behind” after deciding to hold the rate in September when inflation risks increased.
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Indonesia’s October rate increase, which came after eight months of pause, was meant as a “preemptive, front-loading” move, said governor Perry Warjiyo, who signalled last week that he’s ready to take action if warranted.
Another quarter-point rate hike to 6.25 per cent would act as an insurance policy for the Indonesian economy against geopolitical risks and rising political uncertainty ahead of the 2024 election that could affect foreign inflows, Bahana analysts wrote.
Other economists are also expecting further tightening as last week’s rate move have done little to halt the rupiah’s slide. As far as inflation threats go, however, Indonesia is in a far better position than the Philippines after having cooled price gains to within target since May while its neighbour faces the risk of missing its price goal for a third straight year in 2024.
Indonesia’s Financial System Stability Committee – which includes the central bank, finance ministry, financial services authority and deposit insurance agency – is due to meet on Nov 3 and may deliver a more comprehensive response then, BI’s Haryono added.
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