Bank Indonesia’s decision today to hike the rate it pays lenders on overnight deposits (also known as the Fasbi rate) reflects concerns about the weakness of the rupiah and falls in the level of foreign exchange reserves. Changes in the Fasbi arguably matter more to Indonesia than shifts in the main policy rate. Looking ahead, we expect to see further hikes in the Fasbi before the end of the year, but for the main policy rate to remain on hold.
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