Bank Indonesia (BI) surprised market participants with a rate hike today in a bid to help shore up the IDR.
The central bank believes the global economy will face growing headwinds with rising uncertainty, and indicated a “stronger policy response” was needed given the heightened uncertainty in financial markets. It now predicts that global growth should stabilize around 2.9% year-on-year in 2023 and 2.8% next year, and that the US Federal Reserve is now set to keep rates high for longer. Given the context, BI anticipates that the capital outflow will persist during the rest of the year.
With the rupee falling 1.77% on the month, BI had no choice but to implement additional supportive policies for the currency.