BI governor: Clarity on Fed rates a key takeaway

BALI: Bank Indonesia (BI) governor Perry Warjiyo said clarity on the gradual pace of United Sates interest rate hikes was one of the key takeaways of the just-ended International Monetary Fund and World Bank meetings here.

The signals on policy normalisation from the US Federal Reserve (Fed) officials and other developed market central bankers were among the “positive” outcomes of the talks, and should hopefully ease pressure in financial markets, especially in emerging economies, said Warjiyosaid in an interview on Saturday.

“We are seeing that the normalisation process of monetary policy in advanced countries, especially from the Fed, will be gradual,” he said.

“And the Fed will also continue to communicate clearly the future course of the normalisation process.”

With trade tensions overshadowing talks here, policymakers from emerging economies have been worrying about a prolonged rout in financial markets, triggered by US rate hikes and a stronger dollar. Bank Indonesia has already raised borrowing costs five times since May to help stabilise the rupiah, which is down almost 11 per cent against the US dollar this year.

Warjiyo said clarity from the Fed should help in “reducing the volatility of flows as well as volatility of the market and the exchange rate”.

Indonesia has been one of the hardest hit economies in Asia in the global emerging-market selloff, with twin deficits on the current account and budget, as well as a relatively high foreign ownership of its bonds, makes the nation vulnerable to outflows.

Warjiyo said the rupiah is “undervalued” given the economy’s fundamentals. The economy is expanding more than five per cent, inflation is low and the fiscal deficit is below two per cent of gross domestic product.

“I do believe that what you are seeing in the rupiah development, I think it’s already misaligned from the fundamentals,” he said.

Indonesia has called for a multilateral response to protectionist headwinds and as well as for global monetary policy to be better synchronised.