BI Expected to Raise Interest Rates as Rupiah Weakens

According to reporting from Jakarta Globe, Bank Indonesia (BI) is anticipated to increase its benchmark interest rate by 25 basis points during the upcoming Board of Governors meeting next Wednesday (24/4/24.)

Hans Kwee, Co-Founder of Pasardana, said that BI previously raised its benchmark interest rate by 25 basis points to 6-percent in October 2023, in response to the Fed’s higher-for-longer policy. He suggested that BI might take a similar step again amidst the weakening rupiah. Currently, the rupiah’s exchange rate remains weak, at around IDR 16,000 per dollar.

“The indications were the same as The Fed’s higher-for-longer policy, so if the rupiah weakens, BI might raise it by 25 basis points,” Hans Kwee told Investor Daily TV on Wednesday (17/4/24.)

The “higher-for-longer” policy refers to the Fed’s approach of keeping interest rates higher for an extended period. This policy aims to maintain control over inflation and ensure economic stability, says Jakarta Globe.

According to Hans, a 25 basis point increase in the interest rate will attract capital inflows into the Indonesian financial market and raise the yield of Indonesian bonds, adding that despite facing challenges like inflation contributing to the rupiah’s depreciation, Indonesia’s economy remains resilient. “If we look at economic growth, it is still good, and inflation is still within target. The trade balance is still surplus, but external factors are putting pressure on the rupiah,” Hans said.

Meanwhile, the Composite Stock Price Index at the Indonesia Stock Exchange rebounded at the opening of trading on Wednesday, following a 2-percent drop in the previous day’s trading due to escalating conflicts in the Middle East. Additionally, the inflation rate in the United States exceeded expectations, according to Jakarta Globe.

“In the short or daily term of trading, we will certainly be speculative on several banking stocks because this sector is the most neutral when interest rates remain high,” Hans said.

According to Hans, banking stocks worth considering include Bank Mandiri (BMRI), Bank Rakyat Indonesia (BBRI), Bank Central Asia (BBCA), and Bank Negara Indonesia (BBNI). For the medium term, he recommended commodity stocks, especially gold, which experienced significant trading growth. He projected that the global gold price could reach USD 2,400 per ounce as many central banks, including China, are adjusting their policies, reports Jakarta Globe.

“They are trying to reduce their reliance on the US dollar as foreign exchange reserves and switch to gold, leading to global gold buying amid escalating geopolitical tensions,” explained Hans, saying that investors tend to shift towards safe-haven assets like gold. Companies worth considering include Aneka Tambang (ANTM), Merdeka Copper Gold (MDKA), and J Resources Asia Pasifik (PSAB), which could be attractive options for medium-term investors, reports Jakarta Globe.

“Gold is one of our preferred choices, and companies like Antam are worth considering because they are expected to continue to have growth potential,” he concluded.

 

Source: Jakarta Globe

Photo by CEphoto, Uwe Aranas / CC-BY-SA-3.0

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