In a surprise move, Bank Indonesia (BI) today hiked its main policy rate by 25bps (to 6.0%) in an attempt to support the currency. But there is a good chance this will be a case of “one and done”. Our forecast is that US bond yields will drop back over the coming months and that the rupiah will regain some lost ground. Meanwhile, with inflation very low and growth struggling, policymakers will be wary about tightening policy too aggressively.
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