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Indonesian bond rates could rise by 50 basis points (bps) from as soon as the third quarter of next year, the central bank chief said on Friday, to match an expected hike of 50 to 75 bps in Treasury yields as the US tightens monetary policy.
The comments by Perry Warjiyo, the governor of Bank Indonesia (BI), came after the Federal Reserve said this month it would end pandemic-era bond purchases in March, paving the way for three rate hikes of a quarter percentage point each by the end of 2022.
“The impact of Fed Funds Rate hikes… in the end is rising UST (yields) of between 50 to 75 bps. Most likely 50 bps,” Warjiyo told an online seminar with economists.
“If UST rise by 50 bps, of course, yields of our domestic sovereign bonds will have to adjust by around 50 bps.”
He added that BI would ensure the rupiah currency stayed stable despite global monetary tightening and promised to continue its so-called triple intervention strategy in the spot FX, bond and domestic non-deliverable forward markets.
The rupiah is among the year’s best performing emerging Asian currencies, thanks to Indonesia’s large trade surpluses, boosted by the commodity super-cycle. But it is also one of the region’s most risk-sensitive.
Domestic inflation may begin to rise in the third quarter, Wariyo added. He reiterated the bank’s pledge to keep interest rates at record lows until inflation starts heating up.
Category: Indonesia
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