Perry Warjiyo Promises Not Too Late Customize Interest Rates

INDUSTRY.co.id - Jakarta - Perry Warjiyo, newly inaugurated as Governor of Bank Indonesia, promised an anticipatory and anticipatory interest rate policy response in response to pressure on foreign capital outflows that could undermine the rupiah exchange rate.

After stating the oath of office in the Supreme Court, Jakarta, Thursday (24/5/2018) Perry stressed that he will implement "stronger" monetary policy measures, pre-emptive and anticipatory to external economic pressure, four times the Federal Reserve's benchmark rate hike this year.

"I plan to be more 'pre-emptive', 'front loading' and 'ahead the curve' in the interest rate response policy," he said, who spent his last five years as BI Deputy Governor.

He added that BI will conduct a double intervention to stabilize the rupiah exchange rate in the forex and SBN markets.

Perry, who has always campaigned for monetary policy and prostability, believes global economic pressure, especially from the United States, will still overshadow the condition of foreign capital flows in Indonesia.

Confidently, he predicts the US Federal Reserve will raise its benchmark interest rate four times this year, which indicates an improving US economy.

"The rupiah has been under pressure since February 2018 because of the external economy in the US, the yield on US Treasury government bonds is up and US economic data," he said.

BI acknowledged Perry mistakenly predicted 10-year US government bond yields that are now touching 3 percent. Previously, BI estimates US government bond yields will only move in the range of 2.7 percent.

"The pressure also comes from a higher US fiscal deficit, this year estimated at 4 percent, next year 5 percent, and that will make US financing higher," he said.

The need for financing for the deficit has prompted US bond yields to rise and trigger capital outflows from all emerging markets, including Indonesia.

To ease the pressure on the rupiah, Perry will deepen financial markets to ensure that foreign exchange and rupiah liquidity are available.

From January to May, BI's intervention in the government securities market has spent Rp50 trillion, of which Rp13 trillion was in May 2018. The intervention was to ease the turmoil in the SBN market as capital outflows following rising US government bond yields.

Perry in the near future will also call on banks that are active in foreign exchange management to "soothe" and socialize monetary policy.

"I will also strengthen coordination with the Financial Services Authority and I will also actively communicate with banks, for example to justify many misperceptions," he said.

BI's "7-Day Reverse Repo Rate" benchmark rate is currently at 4.5 percent, which in May 2018 just rose 0.25 percent after the 9th straight month maintained at 4.25 percent. (Ant)