Surprise hefty rate hike caps Indonesian rupiah losses; Asia FX weakens

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The Indonesian rupiah pared most of

its earlier losses on Thursday after its central bank delivered

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a larger-than-expected interest rate hike, while other Asian

currencies retreated after the U.S. Federal Reserve gave a

hawkish monetary policy outlook.

Equities in Asia also hit a two-year low after the Fed

delivered its third straight 75 basis point rate hike on

Wednesday and signaled further increases, underscoring its

resolve to not let up its fight to contain inflation.

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Bank Indonesia (BI) raised its key interest rate by 50 bps,

higher than the expectations of 25 bp hike, after unexpectedly

hiking its policy rate in August for the first time since 2018,

embarking on monetary tightening to fight rising inflation.

“BI raised rates by 50 bps when markets were expecting a 25

bps raise. This second surprise in a row from BI was mainly on

account of a rather hawkish pivot by Fed yesterday, and more

rate hikes are expected by BI over the next few meetings,”

Societe Generale economist Kunal Kundu said.

The rupiah was down 0.2%, after touching a more than

two-year low, while shares in Jakarta were largely

unchanged, up 0.3%.

The Philippine central bank also raised its benchmark

interest rates by half a percentage point, as expected, in its

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fifth hike this year to curb inflation and support a sagging

local currency.

The peso remained largely unchanged at a record low,

down 0.9%, while equities in Manila were down 0.6%.

The Bank of Japan remained a global outlier among central

banks, as it maintained ultra-low interest rates and dovish

policy guidance.

The yen, down more than 20% so far this year against

the greenback, was down 0.9% at its lowest level in 24 years.

Fed officials signaled that borrowing costs would keep

rising this year and projected rates hitting 4.4% this year,

higher than markets had priced in before the meeting and 100 bps

more than the central bank projected three months ago.

The U.S. dollar hit a two-decade high versus its major

peers.

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“The 2Y yield already running ahead of the Fed funds rate,

and some safe-haven flows amid geopolitics might have been

factors preventing the yield from reacting more to the FOMC

outcome earlier,” Frances Cheung, rates strategist at OCBC Bank,

said in a note.

Higher yields strengthen the dollar, boosting the appeal of

Treasury notes and the greenback, and in turn weigh on riskier

Asian assets.

“More aggressive rate hikes will further hurt growth while

keeping inflation expectation anchored; such inflation-growth

matrix shall limit the upside to the 10Y yield at least in the

near term,” Cheung said.

Investors in Asia are also awaiting a policy decision from

the central bank in Taiwan later in the day, with a mild

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interest rate hike expected, according to economists polled by

Reuters.

The Taiwan dollar was down 0.6% at its lowest in

three years, while shares on the Taiwan Stock Exchange

declined 0.6%.

HIGHLIGHTS:

** Indonesian 10-year benchmark yields up 3.300

basis points at 7.228%​​

** Singapore’s 10-year benchmark yield is up 0.4

basis points at 3.194%

Asia stock indexes and

currencies at 0758 GMT

COUNTRY FX RIC FX FX INDE STOCK STOCK

DAILY YTD % X S S YTD

% DAILY %

%

Japan -1.18 -21.0 <.n2>

China 0 EC> 9

India -0.94 -7.94 <.ns ei>

Indones -0.13 -5.09 <.jk ia se>

Malaysi -0.40 -8.85 <.kl a se>

Philipp -0.84 -12.8 <.ps ines i> 3

S.Korea 7 11> 7

Singapo -0.25 -5.03 <.st re i>

Taiwan -0.56 -12.4 <.tw ii> 9

Thailan -0.75 -10.8 <.se d ti>

(Reporting by Riya Sharma in Bengaluru; Editing by Rashmi Aich)