Indonesia Delivers Dovish Hike After

Two Southeast Asian central banks, Bank Indonesia and Bank Negara Malaysia, took different approaches to their policy settings on Thursday. Bank Indonesia raised its benchmark rate by 25 basis points to 5.75%, bringing it closer to the end of its tightening cycle.

Bank Negara Malaysia, on the other hand, stood pat as predicted by Euben Paracuelles of Nomura Holdings Inc., making him the lone analyst to correctly forecast the decision among 18 economists surveyed by Bloomberg. Malaysia was the first in Southeast Asia to raise borrowing costs in May 2022 to fight price pressures, while Indonesia was among the last to jump on the tightening bandwagon.

Central bankers in both nations signaled their growth priorities and expectations of moderating inflation, amid fears of a recession in some advanced economies. Continued policy tightening by central banks will pose headwinds to the global growth outlook, Malaysia’s central bank said in a statement, adding that pausing now would allow it to assess the impact of its previous rate increases. Malaysia sees price gains slowing while staying elevated, and growth moderating this year after a better-than-expected showing in 2022.

Indonesia’s benchmark stock index gained 0.8% on Thursday, while the rupiah pared an earlier decline to trade 0.1% weaker at 15,104 per dollar. The Malaysian ringgit weakened 0.2% after the decision, while stocks were little changed.

The currencies have gained this year, with the rupiah emerging as Asia’s second-best performer and the ringgit appreciating almost 2%. This is thanks to foreign investors returning to emerging markets amid signs of waning US inflation and a downshift in the Fed’s tightening.

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