Bank Indonesia’s new governor stamps his mark with rate hike

Bloomberg

Indonesia’s new central bank chief raised interest rates at an early policy meeting on Wednesday, moving swiftly to counter an emerging-market selloff that’s shaken the nation’s currency and bonds.
Less than a week in office, Governor Perry Warjiyo led the board in increasing the seven-day reverse repurchase rate by 25 basis points to 4.75 percent, in line with almost
all of the forecasts from
26 economists surveyed by Bloomberg. He flagged further rate increases, depending on how domestic and global developments play out and how aggressive the Federal Reserve is in tightening policy.
Global emerging markets are in a tailspin as rising US interest rates and a stronger dollar prompt investors to pull money out of riskier assets. From Argentina to Indonesia, central bankers are grappling with sliding currencies and capital outflows, pushing them to take stronger action to avoid full-blown crises.
Since taking office on May 24, Warjiyo has pledged to be “pre-emptive” and use monetary policy to stabilize the exchange rate. The governor said on Wednesday the rate hike — at an out-of-cycle meeting that comes a month before the regular scheduled one — was a bid to act before the Fed’s expected tightening in June and to help bolster the currency.
“Bank Indonesia will continue to calibrate developments, domestic and global, to make use of available space for higher rates in a measured way,” Warjiyo said, adding the central bank would continue dual intervention in markets to support the currency.

RUPIAH SLUMP
The rupiah is among the worst performers in Asia this year, dropping 5 percent against the dollar since the selloff began toward the end of January, while yields on 10-year government bonds have surged almost 100 basis points. The currency ended little changed at 13,990 against the dollar in Jakarta on Wednesday.
“Bank Indonesia was as hawkish as it was two weeks ago when they hiked so that tells me it is leaving the door wide open for more tightening,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore.