Indonesia bulls cheer better-late-than-never rate hike

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SINGAPORE- Indonesia’s first interest rate hike in four years made its central bank one of the last to abandon pandemic-era monetary settings, but it’s also given investors cause to stay bullish on one of the world’s more resilient emerging markets.

Bank Indonesia raised its benchmark rate on Tuesday as it flagged faster inflationary pressures, surprising most analysts less than a week after Governor Perry Warjiyo said there was no need to tighten.

The rate hike, which Warjiyo called “pre-emptive”, comes after months of the central bank talking down inflation, which raised some investor concerns that policymakers were too casual in their risk assessment and overly reliant on price controls.

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“I don’t know if I would describe it as a relief, but you’re seeing perhaps some lessons learned from the experiences around the rest of the world,” said Alex Wolf, head of investment strategy for Asia at J.P. Morgan Private Bank, referring to the rapid pace of global inflationary pressures.

Wolf says Indonesia is a country “we prefer within Asia,” with prospects for solid growth supported by robust domestic demand and favourable terms of trade.

Other investors also liked the rate hike, which has reassured them policymakers are aware of the risks and have them in hand, while upgraded growth expectations also lifted confidence.

The rupiah rose and is some 1.2 percent above July lows — more resilient than peers as MSCI’s broadest index of emerging market currencies sits by a six-week low.

Stocks and bonds have rallied too, with the Jakarta Composite Index steady on the week and up 9 percent this year against heavy losses in most other markets.

Indonesia’s benchmark 10-year bond yield has fallen almost 50 basis points from a high of 7.544 percent in June. The gap against US Treasuries has also narrowed this year even as high-yield sovereign spreads generally widened. — Reuters

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