INDONESIA: BI Surprises with Rate Hikes, Doubles Down on Rupiah Support

Jun-09 05:48

The Bank Indonesia broke cycle and raised rates today by 25bps - despite a central bank meeting scheduled for June 18.
Commentary out of the BI's surprise move focused on the need to keep inflation in targets, attract foreign flows and to strengthen Rupiah stability.
The move has caught markets offside with USDIDR down -88 to be near 18,090 / 18,108 after Monday's close of 18,181.
The JCI has fallen back after posting very strong gains. Having been up +5.3% earlier, profit takers have stepped in and it is currently up +4.8%.
Front end bond yields have moved aggressively higher with the 3-Yr +10bps to 7.36% and the 5-Yr +13bps to 7.477%.
The BI has raised the interest rate on the O/N deposits by 25bps and has stated it intends to keep raising SRBI rates across all tenors.
The BI states it intends to intensify monetary operations of Rupiah, FX and intends to re-open Repo Auctions for 3,6,9,12 month tenors.
In another attempt to stop the Rupiah's falls the market will yet again be left to decide whether this is enough. Credibility is at test here with deep seated concerns about CB independence and fiscal prudence at the core of the concerns.
If the Rupiah fails to post gains on the back of this it could lead to further capitulation for investors and a broader more systemic sell off.

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