Indonesia's central bank delivered a surprise rate hike on 24 April 2024, stepping up efforts to support the rupiah against selling linked to global risk aversion and a delay in US policy easing. Bank Indonesia (BI) raised the seven-day reverse repurchase rate by 25 basis points to 6.25%, its highest since the bank made the instrument its main policy rate in 2016.
Six of 35 economists polled by Reuters had predicted the hike, which was BI's first since October. BI also increased the overnight deposit facility and lending facility rates by the same amount to 5.50% and 7.00%, respectively.
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The rupiah extended gains after the announcement and was up 0.45% against the dollar at 0736 GMT at 16,140. The central bank has been intervening to defend the currency, which had fallen to around 16,200 per dollar — the weakest since 2020.
Indonesia's annual inflation rate climbed to a seven-month high in March, though it remained close to the midpoint of BI's 1.5% to 3.5% target range. BI kept its outlook for growth in Southeast Asia's biggest economy at a range of 4.7% to 5.5% this year, compared to last year's 5.05% growth.
Malaysia is unlikely to change its OPR (overnight policy rate) of 3% anytime soon. This is because BNM is biased to growth rather than exchange rate. As it stands, we have 2.25-2.5% negative interest differential against the U.S. Further, inflation is likely to climb above 3% with targeted subsidies being implemented progressively. That’s a negative real interest rate. Savers are punished rather than borrowers! Trade improvements and net FDIs are the bright spots for 2024. These will not outweigh the interest rate and inflation factors. So, the chances of exchange rate strengthening to 4.40 to the U.S. dollar are now diminished!
Reference:
Indonesia’s central bank delivers surprise rate rise to support rupiah, Gayatri Suroyo, theedgemalaysia.com, 25 April 2024
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