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Indonesian central bank governor Perry Warjiyo joined in Urjit Patel of Reserve Bank of India (RBI), who warned earlier this week of a looming dollar liquidity shortage in the market could become a crisis, as the U.S. Federal Reserve continues to increase interest rates and reduce its large balance sheet. Reserve Bank of India (RBI) unexpectedly increased interest rates this week by 25 basis points.
On Wednesday, Indonesia’s central bank governor Perry Warjiyo called from prudence from the U.S. Federal Reserve as the emerging markets either see their currency slide or interest rates go higher or both. He said, “We know every country must decide their policy based on domestic circumstances but look, you have to take account of your actions and the impact of your actions to other countries, especially the emerging markets”. Over the past two weeks, the central bank of Indonesia has increased rates twice, pushing to 4.75 percent. The move came despite the country’s inflation staying at 3.23 percent, as of latest reading in May.
As the dollar assets get more attractive due to higher rates, emerging markets are seeing dollar outflows from all over the world.
