Indonesia May Hike Rate Again to Shield Currency, Analysts Say

Bank Indonesia may increase its benchmark interest rate again to protect the rupiah and reduce market volatility, according to analysts. This potential move follows the central bank's surprise rate hike on Tuesday, which helped the Indonesian currency recover from record lows and boosted stock prices. The benchmark 7-day reverse repurchase rate was raised by 25 basis points to 6.25% on April 24, 2024, marking the first increase since January 2023. This decision aimed to stabilize the rupiah, which had depreciated by approximately 5% against the US dollar year-to-date prior to the hike. Analysts from PT Bahana Sekuritas and PT Mandiri Sekuritas suggested that further tightening might be necessary if global economic conditions or domestic inflation pressures persist. The rupiah strengthened by 0.5% against the dollar following the April 24 announcement, and the Jakarta Composite Index (JCI) rose by 1.3%. However, concerns remain about the impact of a prolonged period of high interest rates on economic growth, which is projected to be around 5% for 2024. The central bank has stated its commitment to maintaining price stability and supporting sustainable economic growth.