Flash: Weak Indonesia Rupiah triggers start of tightening cycle - Nomura

FXstreet.com (Barcelona) - The Bank Indonesia (BI) raised its overnight deposit facility rate (FASBI) by 25bp to 4.25% on Wednesday, with BI stating it is "fully prepared to take necessary measures to stabilise monetary conditions in light of recent IDR depreciation" adding it will "continue to meet the market requirement for rupiah and forex liquidity."

In view of Nomura Economist Euben Paracuelles, "We think a credible response will be to follow up with a more significant hike in the policy rate at today's BI meeting." As such, Paracuelles now sees a 50bp hike in the BI rate as possible (versus consensus of BI on hold). "If the IDR volatility continues, the usual 25bp increment is unlikely to be effective, as it could be seen by markets as BI remaining conservative on the tightening despite the impact of the weaker currency on inflation expectations" he added.