Indonesia Ready to Boost Rates, Buy Bonds to Shield Rupiah




  • In Business
  • 2022-11-30 05:27:41Z
  • By Bloomberg

(Bloomberg) -- Bank Indonesia stands ready to further raise interest rates and boost short-term bond yields to support the rupiah into 2023, Governor Perry Warjiyo said.

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The rupiah, Asia's worst performer this quarter, should bounce back next year on the back of Indonesia's recovery momentum and cooling inflation, Warjiyo said at the central bank's annual meeting on Wednesday. The monetary authority will continue its "triple intervention" strategy and buy up bonds in the secondary market to maintain "competitive" yields.

Indonesia's currency has weakened to a two-year low even as the central bank tightened by another half-point earlier this month, taking the benchmark rate to pre-pandemic levels. The rupiah erased an earlier loss and was little changed at 15,739 per dollar as of 12:06 p.m. Jakarta time, as BI said it intervened on Wednesday.

Amid continued global turmoil, the governor doubled-down on Bank Indonesia's "front-loaded, pre-emptive and forward-looking interest rate policy" to anchor "overshooting" inflation expectations, with the goal of wresting the core gauge back to the 2%-4% target earlier in the first half of 2023.

At the same time, policymakers will keep using macroprudential measures to support growth. Bank Indonesia is extending looser rules on home and auto loans, as well as lower reserve requirements for banks lending to priority sectors. It reaffirmed its estimate for gross domestic product to expand 4.5%-5.3% next year, driven by exports, consumption and investment.

The central bank also launched its white paper on the digital rupiah, with plans to launch it wholesale for money markets then expanding it to retail later.

Here are the latest estimates from Bank Indonesia:

  • Global interest rates will likely stay higher for longer, with the Federal Reserve's key rate expected to reach 5% and stay high for the rest of 2023

  • Inflation will return to the target range of 2%-4% in 2023 and 1.5%-3.5% in 2024

  • Credit growth seen at 10%-12% in 2023 and 2024

--With assistance from Claire Jiao and Sanjit Das.

(Updates with more details from governor's speech)

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