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Jakarta Post

Bank Indonesia rate hike, effort to minimize risks: Analysts

Rachmadea Aisyah (The Jakarta Post)
Jakarta
Fri, May 18, 2018

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Bank Indonesia rate hike, effort to minimize risks: Analysts The Bank Indonesia (BI) building on Jl. MH Thamrin, Central Jakarta. (JP/Wienda Parwitasari)

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ank Indonesia’s (BI) decision to increase its seven-day reverse repo rate by 25 basis points to 4.50 percent on Thursday is intended to minimize the risk of further rupiah depreciation caused by intense external pressure in recent days, analysts have said.

“The increase of 25 bps is a signal of BI’s effort to minimize risk factors, although the risks are not that big,” said Bank Mandiri chief economist Anton Gunawan in Jakarta on Thursday.

He predicted that another 25 bps rate increase would be made after the second quarter, leading to a 4.75 percent repo rate by the end of 2018.

The rupiah has remained above Rp 14,000 against the US dollar in the last several days, which is believed to have been caused by US' monetary policy.   

Anton, however, said that Indonesia’s currency was still in a better position than its Asian neighbors, such as the Philippines and India, in the context of emerging markets avoiding the risks borne by monetary normalization in the US.

Meanwhile, security firm Mandiri Sekuritas head of fixed income research Handy Yunianto has expressed his optimism that Indonesia would not suffer another taper tantrum like it experienced in 2013 and 2015.

He said Indonesia showed much better indicators than it did five years ago, particularly in terms of its inflation rate, foreign exchange reserve and current account deficit.

In an effort to further help the rupiah, he called on the central bank to purchase bonds so that more rupiah would circulate in the market. (bbn)

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