The Bank of Indonesia raised its interest rate by 0.25% to 5.75%, marking the third rate hike in about a month, to curb the rupiah's weakening and counter the Federal Reserve's tighter stance.
June 18, 2569 at 14.43:XNUMX a.m. Bloomberg News reported that The Bank of Indonesia (BI) raised its policy interest rate by another 0.25% to 5.75% at its meeting on Thursday. This marks the third interest rate hike in approximately one month, reflecting proactive efforts to support the rupiah and build investor confidence.
The decision aligns with the views of most analysts surveyed by Bloomberg and comes after BI surprised everyone by raising interest rates on June 9, as well as a 0.50% increase in May, bringing Indonesia's total interest rate hikes for the year to 1.00%.
Central Bank of Indonesia specify that The latest interest rate hike is aimed at boosting the rupiah and attracting foreign capital into financial markets, amid concerns that currency depreciation could translate into broader inflationary pressures.
Following the announcement of the meeting results, the rupiah narrowed its losses almost entirely, while the yield on 10-year government bonds rose. The Indonesian stock market, however, remained down about 1.5%. Earlier, the rupiah had recovered approximately 2% from its all-time lows following last week's unexpected interest rate hike.
Mr. Perry Varjiyo, Governor of the Central Bank of Indonesia said The rupiah is likely to remain stable and continue to appreciate, supported by central bank measures and strong economic fundamentals.
However, many investors believe the rupiah's recovery may be only short-lived if tight monetary policy is not supported by other economic measures, such as more efficient government spending, clearer policy communication, and a more predictable regulatory environment under President Prabowo Subianto's administration.
Furthermore, emerging market assets face additional risks after the U.S. Federal Reserve (Fed) signaled its support for further interest rate hikes this year, even though it kept interest rates unchanged at its most recent meeting. This has resulted in U.S. government bond yields remaining high.
Governor of BI specify that Central banks are also monitoring the possibility of the Fed raising interest rates further to control inflation, which could put pressure on capital flows and currencies in the region.
Meanwhile, some investors are concerned about the Indonesian government's plan to establish a new national commodity export agency, which could increase market intervention and impact exports, a key source of national revenue.
Inflationary pressures are likely to increase due to higher food and energy costs, as well as the delayed impact of currency depreciation on imported goods. Furthermore, the drought and the risk of a more severe El Niño phenomenon towards the end of the year could exacerbate food supply problems and make the central bank's task of controlling inflation more challenging in the coming period.
refer : www.bloomberg.com
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