Bank Indonesia (BI) hiked its policy rate by 25 bps today. Economists at TD Securities expect another 25 bps hike, potentially as early as next month. The USD/IDR has dropped following the hawkish pivot and is set to remain below the 15,000 level.

BI delivers a surprise hike

“In a surprise policy U-turn, BI hiked its 7-day reverse repo rate by 25 bps. BI justified the hike today as a preemptive move to address inflation pressures.”

“While BI took a hawkish stance on inflation, it appeared more dovish on other policy settings. BI is now signalling its own form of 'Operation Twist', joining other central banks like the RBI. We don't expect BI to stop with a one-off 25b ps hike today and expect another 25 bps, potentially as early next month.”

“We think IDR should be relatively more resilient compared to other EM-Asia currencies despite renewed USD strength.” 

“We think BI will continue to defend the USD/IDR 15,000 level, which will act as a strong line in the sand.”