Bank Indonesia to Soothe Investors’ Nerves

After a surprise rate cut in February triggered volatility in Indonesia’s bonds and currency, the central bank is likely to spare investors another shock this month, analysts say.

“The Indonesian rupiah has been volatile over the past month,” said ANZ ASEAN economist David Wilson. And, given that international capital flows fund Indonesia’s large current and fiscal deficits, “the central bank is now managing a slow and guided depreciation” of the Indonesian rupiah,” he said.

Bank Indonesia surprised markets in February with its first rate cut since 2011, which sparked a selloff in the rupiah. Comments by central bank governor Agus Martowardojo a few weeks later that inflation will slow more than expected this year triggered further selling, with the rupiah losing 3.7 percent against the U.S. dollar since the rate cut.


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