The U.S. dollar's appreciation could force the Federal Reserve to moderate and even pause its tightening cycle this year, Indonesia's finance minister told CNBC on Friday.
"It (the expected increase in interest rates) is no longer 100 basis points this year, as many [initially] expected. Maybe a maximum of 50 basis points or less, or even no hike this year," said Bambang Brodjonegoro on the sidelines of the Group of 20 (G20) conference in Shanghai.
The U.S. dollar index has rallied nearly 4 percent in the past six months, aided by the divergence in global monetary policies. Aggressive stimulus in Europe and Japan has pushed down the euro and yen, lifting the greenback in turn.
A stronger dollar won't make U.S. exporters happy since they lose competitiveness, which could see Americans buy more imported, cheaper products instead, Brodjonegoro explained. The Fed cannot ignore that, he added.
Brodjonegoro said he didn't believe that emerging markets were headed for a financial crisis but warned of issues in individual countries' financial systems and government budgets amid lower commodity prices and currency volatility.
Speaking about his home country, Brodjonegoro said Indonesia was focusing on diversifying the economy, which is Southeast Asia's largest, away from commodities and towards manufacturing.
While Indonesia is Asia's top gasoline importer, it also produces about 850,000 barrels of oil a day—half of what it consumes.