At its September monetary policy meeting on Thursday, Indonesia’s central bank, Bank Indonesia (BI), hiked its 7-day reverse repo rate by an unexpected 50 bps from 3.75% to 4.25%.

The central bank Governor Warjiyo noted that the rupiah depreciation is relatively better than peers.

Additional Comments

Global inflation has risen amid geopolitical tensions, protectionist trade policies.

Core inflation is trending up globally, pushing c.banks to be more aggressive with monetary policy.

US rate hike makes us dollar stronger against other currencies.

Govt policy on social spending has helped support domestic consumption.

Price pressure is rising due to higher food, energy prices, hike in fuel prices.

Price pressure is seen heightening starting this month due to fuel price hike.

2022 inflation seen above 2%-4% target range.

We need stronger coordination with govt to ensure inflation returns to target in H2 2023.

Market reaction

On the surprise rate decision by the Indonesian central bank, the Indonesian Rupiah (IDR) rebounded against its American counterpart, dragging the USD/IDR from near two-year highs of 15,042.50. At the press time, the spot trades +0.17% at 15,020.