BANK Indonesia’s monetary policy will focus on maintaining stability in the short-term as a likely victory for Donald Trump in the US presidential election is set to heap more pressure on the rupiah, its governor said.
While the central bank still sees room for more rate cuts, the near-term focus will be on maintaining rupiah stability, Bank Indonesia governor Perry Warjiyo told parliament on Wednesday (Nov 6). He said caution is needed in the face of a probable Trump presidency, an uncertain Federal Reserve easing path, and elevated geopolitical tensions.
“We are watching the development of the US election, where the preliminary result showed that Donald Trump is ahead,” said Warjiyo. “What we are seeing is the US dollar will remain to be strong, US Treasury yields and interest rates will remain high and the trade war may continue.”
“These dynamics will affect all countries, especially emerging markets and Indonesia, in terms of exchange rate pressure, capital flows and financial market uncertainty. These are all what BI should respond to carefully.”
The rupiah pared its losses to 0.6 per cent against the greenback following the governor’s statements, after falling as much as 0.8 per cent on Wednesday.
The comments underline how the US election – and the market volatility it has spurred – could complicate the monetary policy easing path for emerging markets. Bank Indonesia had started cutting its benchmark interest rate in September, but put its easing campaign on hold last month as the rupiah sank. Citigroup and Barclays are among those seeing a higher chance of yet another hold at the Nov 20 meeting.
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The central bank said earlier on Wednesday it stands ready to act to mitigate sharp swings in the exchange rate, deploying its so-called triple intervention in the FX spot, domestic non-deliverable forward and secondary government bond markets. The local currency has fallen 4.4 per cent this quarter amid concerns that a Trump presidency could usher in higher tariffs that could dampen global growth.
“BI will always monitor the exchange rate movement of the rupiah and other currencies, and will certainly make various efforts to stabilise the exchange rate if there is an excessive increase in volatility,” Fitra Jusdiman, the central bank’s director for monetary and securities asset management, said in a mobile-phone message.
“BI has anticipated various scenarios of the US presidential election results and has also prepared mitigations for their potential impacts,” he added.
An extended pause, however, could weigh on the outlook. South-east Asia’s largest economy is already seeing steadily declining inflation and a struggling manufacturing sector, while gross domestic product growth came in at a one-year low of 4.95 per cent last quarter.
While Bank Indonesia maintained its GDP growth forecast for this year at 5.1 per cent, buoyed by exports and investment, Warjiyo acknowledged that spending, especially among the lower-income segments, needs further support. More easing remains on the table, but the governor indicated it markets may have to wait some more time.
“We’ve started to lower the BI-Rate in September and we do still see room for further rate cuts with low inflation, although the short-term focus remains on rupiah stability due to high global dynamics,” he said. “Bank Indonesia will continue to balance monetary policy between stability and growth in 2025.”
While Bank Indonesia has offered incentives to spur bank lending to labour-intensive sectors in the meantime, Bank Maybank Indonesia said a rate pause can’t go on for too long if policymakers are concerned about growth.
“A significantly lower BI rate will support domestic demand activities that have substantial impacts for the economy,” it said in a note. BLOOMBERG
