(Bloomberg) -- The heightened external risks that are beyond Bank Indonesia’s grip may make it tough to call its April’s rate hike as one-and-done, according to economists. 

Its currency remains vulnerable in the face of an unclear Federal Reserve rate path and elevated geopolitical tensions, coupled with corporate dollar demand for dividends and debt payments. Governor Perry Warjiyo’s rupiah guidance — that it will likely average 16,200 per dollar this quarter — reflects those risks.

BI’s unexpected rate hike to 6.25% on Wednesday, paired with incentives to boost lenders’ liquidity to keep ramping up credit, risks impairing the effectiveness of the central bank’s policy tools. The rupiah fell on Thursday, along with many Asian currencies. 

“The decision to tighten the monetary policy while at the same time loosening the macroprudential policy may deprive the market of a clearer policy signal,” economists in PT Bank Central Asia in Jakarta said.

Here’s what economists are saying:

Krystal Tan, Australia & New Zealand Banking Group

  • Given the still-elevated external uncertainties, particularly of the Fed rate trajectory, further hikes can’t be ruled out
  • Any material overshoot in USD/IDR will raise the odds of another hike
  • BI’s macroprudential policies could help support economic growth, but the flip side is they weaken the signaling effect from the rate hike
  • If the Fed starts to ease in December as BI currently expects, Indonesia’s own pivot may have to wait until 2025

Brian Tan and Audrey Ong, Barclays Plc

  • The combination of dividend repatriation and higher-for-longer US rates suggests domestic dollar demand will remain firm in the short run, while the repricing of US rates implies no respite yet for foreign portfolio flows
  • Our base case assumes that April’s hike was one-and-done, but the risks remain tilted toward more hikes if the IDR depreciates further
  • BI’s own forecast suggests that should the IDR depreciate further and the weakness is particularly profound, BI may hike the policy rate again even by 50 basis points

Satria Sambijantoro, PT Bahana Sekuritas

  • BI’s recent rate hike was neither a panic nor dovish hike as it was aware of the higher FX supply needs in May-June, when dollar demand shall escalate for dividend repatriation and maturing foreign debts
  • BI’s “forward guidance” for stronger rupiah was communicated to encourage exporters to swap their dollars
  • Robust lending growth among Indonesia’s big banks can be sustained despite the monetary tightening

Pranjul Bhandari and Joey Chew, HSBC Holdings Plc 

  • There may be little respite for IDR in the near term if the Fed only ends up cutting rate once this year
  • There are risks of further hikes if there is a renewed bout of USD strength, given BI’s revealed preference to hike during periods of currency weakness
  • BI may not follow the Fed 1-1 in rate cuts, preferring a later and shallower rate cutting cycle
  • Base case is for BI rate cuts to start in 4Q, with a total of 100 bps of rate reduction spreading quarterly through mid-2025

Lazuardin Thariq Hamzah and Barra Kukuh Mamia, PT Bank Central Asia 

  • Global asset repricing and potential bear steepening in the US yield curve may continue, potentially setting the stage for further policy tightening by BI
  • BI would synchronize its future rate adjustments with the projected timeline outlined by the Fed
  • The repeating pattern of rate hikes to complement FX interventions, which was also seen in October’s unexpected decision, may diminish the deterrent effect of such measures

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