Bank Indonesia's Call for Special Meeting Welcomed by Investors

(Bloomberg) -- Investors are cheering new Indonesian central bank Governor Perry Warjiyo for calling an unscheduled policy meeting on Wednesday in an effort to stem a rout in the rupiah.

The Indonesian currency strengthened for a third day, rising 1 percent against the dollar as of 3:30 p.m. in Jakarta, while the benchmark Jakarta Composite Index advanced 1.5 percent. The nation’s 10-year bond yield dropped 21 basis points to 7.16 percent in a third day of declines.

Bank Indonesia on Friday announced that the monetary policy board will meet this week. The central bank in Southeast Asia’s biggest economy is seen increasing the benchmark rate by 25 basis points to 4.75 percent, according to 18 of the 20 economists surveyed by Bloomberg. One expects a 50 basis-point move, while another sees no change.

Here’s what analysts and investors are saying about Indonesian markets and the central bank’s surprise meeting:

Clear Policy Direction

Tsutomu Soma, general manager for fixed-income trading at SBI Securities Co. in Tokyo:

  • Bank Indonesia’s new governor is showing his bank’s policy direction is clear, which is improving sentiment for their assets
  • Still, while the new governor’s comments and indication are supportive, the trend for dollar appreciation will likely remain. For the long term, the dollar is likely to stay on the appreciation path, which will continue to weigh on emerging currencies

50 Basis-point Hike Possible

Joey Cuyegkeng, a senior economist at ING Groep NV in Manila:

  • We expect another rate hike at this Wednesday’s meeting. The hike, the second in two weeks, would stabilize the situation further while communicating to the market that BI stands ready to protect the inflation target, the economy and the financial system
  • A 50 basis-point rate hike, which we saw in the early part of the June-November 2013 tightening cycle, is possible
  • EM conditions in the past week have stabilized with encouraging actions in Argentina and Turkey. Indonesia rate hike on May 17 has also managed to start the stabilization in Indonesia

Watch for Aggressive Hike

Norico Gaman, head of research at PT BNI Sekuritas in Jakarta:

  • There’s a possibility that the interest rate will be increased again. But if the interest-rate increase becomes more aggressive, it could limit economic growth potential going forward at a time that growth has been relatively weak even when the benchmark interest rate was at 4.25 percent
  • It appears that the central bank’s monetary policy stance has entered the tight monetary policy stage to defend rupiah stability from the previous stance of low interest-rate policy

‘Quite Determined’

Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. in the city:

  • Bank Indonesia is coming across as “quite determined” to ensure stability in financial markets
  • Whether there will be a rate hike or not is an open question but the extra meeting shows a “commitment on their part that they remain vigilant on keeping the rupiah stable”
  • The rupiah could also be benefiting from the better external environment, as U.S. 10-year yield has dropped back below the 3 percent threshold

Demonstrates ‘Pro-activeness’

Christopher Wong, senior FX strategist at Malayan Banking Bhd. in Singapore:

  • Bank Indonesia’s call for an unscheduled policy meeting on Wednesday demonstrates “pro-activeness” and could help stabilize market sentiment toward the nation’s currency and bonds
  • The rupiah’s selloff could present opportunities for investors to get in at some stage, but the question is when. A phase-in approach at various levels could be one alternative
  • Wong expects the rupiah to recover to about 13,500 per dollar by year-end

Ahead of the Curve

Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore:

  • The new governor’s comments about getting ahead of the curve is positive for the currency, especially if backed up by a rate hike this week
  • Compared with other major emerging-market economies, Indonesia is in a better position than those that have come under pressure with reasonable GDP growth, manageable inflation, a positive real policy rate and ample foreign-exchange reserves

©2018 Bloomberg L.P.