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BI Keeps Rates Unchanged, But Stance Remains Hawkish

ASIA
  • Bank of Indonesia (BI) decided to leave its benchmark rate steady at 3.5% earlier this morning (as expected), but kept a ‘hawkish’ stance in aim to counter the rising inflationary pressures in Asia and maintain IDR stability.
  • BI is expected to raise RRR (reserve requirement ratio) to 6% in June, 7.5% in July and to 9% in September.
  • The central bank specified that the RRR hike will reduce about 110 UDR of liquidity.
  • BI sees inflation exceeding the 4-percent upper tolerance band in 2022 before falling back within the 2%/4% range in 2023.
    • The top chart below shows that Indonesia CPI has been surging in the past few months, up from 1.9% in December to 3.5% in April.
  • BI remains optimistic about the economy, expecting growth to be around 5% for this year.
  • Indonesia 10Y bond yield is up slightly following the decision; with a current 10Y yield at 7.20% (and an inflation rate of 3.5%), the bottom chart shows that Indonesia still offers the second highest 10Y real yield among the EM world (+3.7%).
  • The CNY depreciation in recent weeks has been weighing on IDR, with USDIDR surging from 14,350 in mid-April to a high of 14,738 last week before consolidating below 14,700 in recent days.

Source: Bloomberg/MNI

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