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Monetary Watch 05 Juni 2018
June 06, 2018 15:01

MONETARY WATCH: Another 25bps Hike in May

In an unscheduled meeting on 30 May, BI raised its benchmark 7-Day RR rate by 25bps to 4.75 percent, with the deposits and lending facility rates also increased by 25 bps to 4.00 percent and 5.50 percent,
respectively. This comes after BI hiked the 7-Day RR rate by 25 bps at the most recent scheduled monthly meeting on 16 – 17 May, meaning that the benchmark interest rate was raised by a total of 50bps in May.

The interbank interest rate as proxied by the JIBOR O/N rate remained in its uptrend. Compared to April when the JIBOR O/N rate averaged 4.05 percent, the JIBOR O/N rate averaged 4.11 percent in May.

In next month’s governors’ meeting, BI is likely to hold the benchmark rate steady after the two hikes in consecutive meetings in May. Meanwhile, the expectation of aggressive FFR hike and Fed’s policy
of balance sheet normalization amidst expectations of brighter US economic performance may continue to create rupiah volatility. Potential higher trend of US Treasury yield due to wider budget deficit can also absorb liquidity in global market. Lastly, Trump’s protectionism and geopolitical risk may add some burden to market stability. Against this backdrop, BI will closely scrutinize economic indicators to decide whether further rate hikes are needed in the future.