CHIEF Economist & Investment Strategist PT Manulife Aset Manajemen Indonesia Katarina Setiawan sees Bank Indonesia’s decision to increase the benchmark interest rate or BI Rate by 25 basis points (bps) to 6.25% in April 2024 as being carried out to strengthen rupiah stability and maintain inflation growth until the end This year.
“There will definitely be an impact, such as credit growth will slow down slightly. However, on the positive side the rupiah will be better maintained so that the inflation rate will also be maintained at the level of 3.2% – 3.3% until the end of the year,” he said in an official statement, Saturday (27 /4).
BI is said to have various instruments to try to strengthen the rupiah exchange rate, such as direct intervention in the market, raising funds through Bank Indonesia rupiah securities (SRBI), Bank Indonesia foreign currency securities (SVBI) and Bank Indonesia foreign currency sukuk (SUVBI), being active in the market non-deliverable forward (NDF) and issuing macroprudential policies.
Katarina also believes that domestic political tensions have eased after the decision of the Constitutional Court and the General Election Commission which confirmed the pair Prabowo Subianto and Gibran Rakabuming Raka as the winners of the 2024 presidential election, as well as Indonesia’s relatively high foreign exchange reserves, meaning BI has sufficient capital to maintain the rupiah exchange rate at front.
“Currently, an increase in the benchmark interest rate is considered effective and necessary. For this year, the BI Rate benchmark interest rate is estimated to remain in the range of 5.75%-6.25%. “The value of the rupiah is in the range of IDR 15,400-16,000 per US dollar,” he added.
He explained that there were two things behind the increase in the BI Rate this week. First, economic conditions in the US, where US economic data shows that inflation is still high, growth in the labor sector is still solid, and strong retail sales. All of this makes the Fed have to wait a little longer to cut interest rates.
Also read: Knock! BI Raises Reference Interest Rate by 0.25 Percent
Another thing is the geopolitical conditions in the Middle East which are triggered by tensions between Iran and Israel. If it continues to escalate, it could increase the potential for global inflation through an increase in world oil prices. These two main causes caused the US dollar to strengthen against other currencies in the world, including Indonesia.
“The weakening of the rupiah prompted BI to take preemptive steps by raising the benchmark interest rate to 6.25%,” he explained.
Still Volatile
Katarina added that currently financial markets still tend to be volatile, especially in the short term. However, there are still opportunities that investors can take advantage of in the stock market or bond market. In the stock market, you can take advantage of investment opportunities in sectors whose revenues are denominated in US dollars and companies with more limited debt.
Also read: BI Decides to Keep the Reference Interest Rate at 6%
Meanwhile, for the bond market, Katarina said that currently bond market yields are experiencing a significant increase after previously there was uncertainty from the Fed, where many foreigners had left the Indonesian market.
“Investors can pay attention to opportunities in short tenor bonds, namely 2 years, where the increase in yield is the widest among other tenors,” he concluded.
(Z-9)
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