Surprise hefty rate hike caps Indonesian rupiah losses; Asia FX weakens
The Indonesian rupiah pared most of
its earlier losses on Thursday after its central bank delivered
a larger-than-expected interest rate hike, while other Asian
currencies retreated after the U.S. Federal Reserve gave a
hawkish monetary policy outlook.
Equities in Asia also hit a two-year low after the Fed
delivered its third straight 75 basis point rate hike on
Wednesday and signaled further increases, underscoring its
resolve to not let up its fight to contain inflation.
Bank Indonesia (BI) raised its key interest rate by 50 bps,
higher than the expectations of 25 bp hike, after unexpectedly
hiking its policy rate in August for the first time since 2018,
embarking on monetary tightening to fight rising inflation.
“BI raised rates by 50 bps when markets were expecting a 25
bps raise. This second surprise in a row from BI was mainly on
account of a rather hawkish pivot by Fed yesterday, and more
rate hikes are expected by BI over the next few meetings,”
Societe Generale economist Kunal Kundu said.
The rupiah was down 0.2%, after touching a more than
two-year low, while shares in Jakarta were largely
unchanged, up 0.3%.
The Philippine central bank also raised its benchmark
interest rates by half a percentage point, as expected, in its
fifth hike this year to curb inflation and support a sagging
The peso remained largely unchanged at a record low,
down 0.9%, while equities in Manila were down 0.6%.
The Bank of Japan remained a global outlier among central
banks, as it maintained ultra-low interest rates and dovish
The yen, down more than 20% so far this year against
the greenback, was down 0.9% at its lowest level in 24 years.
Fed officials signaled that borrowing costs would keep
rising this year and projected rates hitting 4.4% this year,
higher than markets had priced in before the meeting and 100 bps
more than the central bank projected three months ago.
The U.S. dollar hit a two-decade high versus its major
“The 2Y yield already running ahead of the Fed funds rate,
and some safe-haven flows amid geopolitics might have been
factors preventing the yield from reacting more to the FOMC
outcome earlier,” Frances Cheung, rates strategist at OCBC Bank,
said in a note.
Higher yields strengthen the dollar, boosting the appeal of
Treasury notes and the greenback, and in turn weigh on riskier
“More aggressive rate hikes will further hurt growth while
keeping inflation expectation anchored; such inflation-growth
matrix shall limit the upside to the 10Y yield at least in the
near term,” Cheung said.
Investors in Asia are also awaiting a policy decision from
the central bank in Taiwan later in the day, with a mild
interest rate hike expected, according to economists polled by
The Taiwan dollar was down 0.6% at its lowest in
three years, while shares on the Taiwan Stock Exchange
** Indonesian 10-year benchmark yields up 3.300
basis points at 7.228%
** Singapore’s 10-year benchmark yield is up 0.4
basis points at 3.194%
Asia stock indexes and
currencies at 0758 GMT
COUNTRY FX RIC FX FX INDE STOCK STOCK
DAILY YTD % X S S YTD
% DAILY %
Japan -1.18 -21.0 <.n2>
India -0.94 -7.94 <.ns ei>
Indones -0.13 -5.09 <.jk ia se>
Malaysi -0.40 -8.85 <.kl a se>
Philipp -0.84 -12.8 <.ps ines i> 3
Singapo -0.25 -5.03 <.st re i>
Taiwan -0.56 -12.4 <.tw ii> 9
Thailan -0.75 -10.8 <.se d ti>
(Reporting by Riya Sharma in Bengaluru; Editing by Rashmi Aich)