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US inflation spike deemed temporary, BI expects no Fed tapering this year
Bank Indonesia and analysts alike believe high inflation seen in the United States in May is temporary and will not prompt the US Federal Reserve to taper off its bond purchasing program this year.
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Fed chairman Jerome Powell talks at a virtual news conference after the United States central bank’s two-day policy meeting in Washington, DC on Nov. 5, 2020. (Reuters/-)
B
ank Indonesia (BI) is not expecting the United States Federal Reserve to start winding down its bond-buying program this year as unusually high US inflation in May is deemed temporary.
BI Governor Perry Warjiyo said Indonesian fiscal and monetary policymakers were preparing for an eventual tapering-off in the Fed’s bond-purchasing program by maintaining a low benchmark interest rate and stabilizing the Indonesian 10-year government bond yield and the rupiah’s exchange rate.
“This is an anticipatory measure. Our reading suggests that tapering by the Fed this year is unlikely,” Perry said in a televised hearing with the House of Representatives on Monday. “For next year, it is possible, so we are responding this year through stabilization of the exchange rate and government bonds.”
The yield on Indonesian 10-year government bonds was 6.45 percent on Monday, according data from the Indonesia Bond Pricing Agency (IBPA). The rupiah’s exchange rate was recorded at Rp 14,203 per US dollar on Monday, Thomson Reuters data show. The US 10-year treasury yield was 1.51 percent on Monday, according to the US Department of Treasury.
Concern over a sooner-than-expected tightening in the Fed’s monetary policy grew as US annual inflation rose to 5 percent in May, the highest in 13 years. The rise in consumer prices was attributed mainly to higher energy and used car prices.
Read also: US inflation jumps to 5% in May, highest level in 13 years
With the US just starting to reemerge from the pandemic, the high inflation rate was in part the result of the base effect and was therefore considered “transitory” by the Fed, news agency AFP reported on June 10.
