17 Jun 2021 | News & Feature

Fed and BI Policy: A hawkish signal, but no sharp turn

  • The Fed’s dot plot indicates two rate hikes in 2023, affirming an upward trajectory for global interest rates.
  • The announcement is nonetheless not a great departure from market expectations, and most importantly only caused a modest (10-20 bps) increase in real yields instead of the sharp spike during 2013’s taper tantrum.
  • Indonesia is better-placed to withstand any potential shock from tapering compared to 2013, with regards to inflation, current account, and foreign bond ownership.
  • The balance of macro factors still point to a gradual retreat by BI from its accommodative policy, and so the 7-Day Repo Rate might remain at 3.50% until a significant pullback in global liquidity (e.g. from tapering) is underway.