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Jakarta Post

Bank Indonesia’s rate hike fails to help rupiah

  • Marchio Irfan Gorbiano

    The Jakarta Post

Jakarta   /   Tue, July 3, 2018   /   08:02 pm
Bank Indonesia’s rate hike fails to help rupiah Bank Indonesia Governor Perry Warjiyo (Antara/Sigid Kurniawan)

Bank Indonesia’s decision to raise its key rate by 100 basis points (bps) in the last two months in an aggressive move to stabilize the rupiah against a stronger United States dollar has proved to be of little effect as the currency continues to hover above Rp 14,000 per US dollar.

The rupiah traded at Rp 14,418 per US dollar on Tuesday, according to the Jakarta Interbank Spot Dollar Rate, sliding from Rp 14,331 the previous day.

The depreciation came amid the central bank’s move to raise its benchmark rate, the seven day reverse repo rate, by 50 bps on Friday to take the rate to 5.25 percent.

It was the third rate hike this year as the central bank directed its monetary policy to stabilize the rupiah amid mounting pressure from a more hawkish Federal Reserve, which is expected to raise its interest rate.

BI Governor Perry Warjiyo assured that the central bank would be active in the market and carry out its dual intervention policy to stabilize the rupiah in bond and financial markets.

He said the latest rate hike was undertaken primarily to maintain the competitiveness of Indonesia’s sovereign bond yield, which in turn would stabilize the rupiah.

“Our [latest] policy rate response was aimed at managing Indonesia’s financial market, particularly in sovereign bonds, to ensure a competitive yield to attract foreign investors,” Perry said in Jakarta on Tuesday, adding that foreign inflows would increase the dollar supply in the financial market and therefore stabilize the rupiah. (bbn)