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Indonesia signals end of hikes as Fed peak rate comes to view

Tan KW
Publish date: Thu, 26 Jan 2023, 09:16 PM
Tan KW
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Bank Indonesia has delivered enough interest-rate increases, according to governor Perry Warjiyo, who signalled that this round of tightening is coming to an end as the US Federal Reserve (Fed) also winds down.

The Fed rate will likely peak at 5.25%, with a chance of easing to 5% by the end of this year as US inflation cools, Warjiyo told Bloomberg Television’s Haslinda Amin on Thursday (Jan 26). The outlook on the Fed’s terminal rate is “much more certain now” compared to last year, when market bets reached as high as 6%, he said.

“If there’s no unforeseen conditions beyond our assumption, then I think this is sufficient,” the governor said of Indonesia’s 225 basis-point-increase since August that took the benchmark rate to the highest since July 2019. Neighbouring Malaysia already paused. while the Philippines said it’s at the tail end of tightening.

The turnaround has been swift for Bank Indonesia, with the rupiah becoming one of Asia’s top gainers this year from being among its worst performers in 2022. Inflation is likewise expected to ease to about 3.5% by end-2023, coming off its seven-year high of nearly 6% in September.

Cooling inflation in the US and a downshifting Fed are taking pressure off currencies, including Indonesia’s, helping policymakers rein in prices and focus on supporting growth against a fragile global picture. The Fed will announce its first decision of the year on Feb 1, where most analysts are seeing a quarter-point increase, slowing from a half-point in December and a string of 75-basis-point hikes before that.

The rupiah has advanced 4% this year against the dollar, strengthening below the key 15,000 level as foreign funds return to Indonesia.

The central bank will consider data during its monthly rate meeting, and is watchful of any shocks that could upend its outlook, Warjiyo said on the sidelines of Bank Indonesia’s annual investment forum in Bali.

Geopolitical tensions - and their impact on global oil prices - will be a key factor, said the governor, who will complete a five-year term in May.

Indonesia is working under the assumption that oil will cost roughly US$90 a barrel this year, Warjiyo said. If it soars well above that, it could force the government to raise the prices of subsidised fuel yet again. A fuel price increase last year added to inflation woes that set off the central bank’s tightening cycle.

“So as long as oil prices don’t skyrocket, the government certainly won’t increase fuel prices,” Warjiyo said, adding that President Joko Widodo is firmly committed “doing whatever is in his power to ensure price stability”.

As to whether he gets another term as the governor, Warjiyo said it’s all up to the president, who is popularly known as Jokowi.

 


  - Bloomberg

 

Discussions
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DickyMe

"Interest Rate in the United States averaged 5.42 percent from 1971 until 2022, reaching an all time high of 20.00 percent in March of 1980 and a record low of 0.25 percent in December of 2008."

2023-01-26 22:48

DickyMe

There is no ceiling interest rate in US or anywhere in the world unless manipulated by the corrupted powers.

2023-01-26 22:50

Zolan2020

debt ceiling just a drama for politician topic next campaign. CB will print out by gov order until it failed. then new one will replace old one. east.

2023-01-27 00:10

Zolan2020

easy

2023-01-27 00:10

stockraider

Indon also signal end hike loh!

Msia should also signal end hike mah!

2023-01-27 08:33

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