Indonesia Central Bank to Hold Additional Meeting

Bank Indonesia’s new governor has announced that an unscheduled meeting of the Indonesian central bank policymakers to be held on Wednesday will pave the way for a quick response to market movements.

Meanwhile, an increasing number of economists are inclined to bet on an interest rate hike at the season.

Last week, Perry Warjiyos was sworn into office as the central bank’s governor. He said that the unscheduled meeting is not “an emergency meeting.”

The rupiah increased to a two-week high, supported by the hopes that the central bank’s actions would manage to relieve the continuing pressure over the country’s financial markets.

Last May 17, the bank increased its benchmark interest rate for the first time since November 2014 in a move to spur the fragile rupiah and stem an outflow of capital. Last Friday, it stated that it will hold an extra meeting on May 30.

The bank stated that it will discuss economic and monetary conditions during the scheduled meeting.

“The dynamics offshore happen so quickly and market perceptions are formed quickly that there is a tendency that some became irrational. These dynamics need to be responded to immediately to stabilize things,” said the new central bank governor. He also added that Wednesday’s meeting will look ahead to the Federal Reserve’s policy review next month.

During Monday’s joint press conference with policymakers, Darmin Nasution, who is the coordinating minister of economics, said that the economic regulators will prioritize stability in the short-term, while putting economic growth in the medium-term.

“We are not in a crisis. These are to strengthen things to respond to dynamics,” stated Nasution.

Last week, Warjiyo promised to use the bank’s interest rate policies to stabilize and improve the rupiah in the near-term. He added that it will be “more pre-emptive” and head of the curve on monetary settings.

The rupiah has been among the worst performers in other Asian currencies this year. It has already lost 3 percent of its value, with investors slashing their holdings in emerging markets as a response to swelling US Treasury yields.

DBS stated in a note that weaker sentiment on emerging market debt had compelled many central banks, including those of Turkey and Argentina, to adopt a more hawkish tone to control capital outflow risks and maintain financial market stability.

“Against this backdrop, further BI hikes may be needed, with the next one possibly as early as this week,” the note said.

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