- Bank Indonesia raised its policy rate by 25 bps to 6.25% in response to the recent global market turmoil and weakening of the Rupiah.
- As expected, BI paired the hike with an expansion of the macroprudential liquidity incentives (KLM) policy, to enhance banks’ liquidity and facilitate loan growth.
- Going forward, global asset repricing and potential bear steepening in the US yield curve may continue, potentially setting the stage for further policy tweaks by BI.
- The tighter rates and looser macroprudential policy could collide, as higher loan growth relative to deposit growth could still translate to wider current account deficits, potentially affecting the Rupiah’s value.
