Indonesia Central Bank Surprises With RRR Hikes, Eyes Fed

Indonesia’s central bank announced on Thursday an unexpected 300 basis points of staggered hikes in the reserve requirement ratio (RRR) for banks over the next eight months, its first signal of monetary tightening.

Bank Indonesia kept its key interest rate steady at 3.50 percent in its first policy meeting of the year, although Governor Perry Warjiyo announced three RRR hikes, starting with 150 basis points in March, 100 bps from June and another 50 bps from September.

The move was aimed at cutting a significant amount of liquidity to prepare for the upcoming interest rate hikes from the U.S. Federal Reserve which are expected to jolt markets across the globe, without cutting key interest rates in hopes of maintaining a “pro-growth” stance.

“For the time being our focus is on maintaining stability amid normalization by the Fed, while at the same time supporting the economic recovery,” Warjiyo said. 

Warjiyo said that the RRR moves will contain about 200 trillion rupiah ($13.95 billion) of liquidity, but he assured that it will leave enough for banks to continue their lending operations.

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