Indonesia’s central bank is one of the few major Asian central banks not to have raised rates from an all-time low since inflation held within its target range of 2%-4%.
But a 75 basis point hike in Fed rates last week and the prospect of more aggressive measures in the coming months sent the rupiah down 2%, its worst weekly performance in nearly three years.
Yet 23 of 32 economists polled in the latest June 13-20 poll expect the central bank to keep its benchmark seven-day repo rate at an all-time low of 3.50% at its 22 and June 23.
“The Bank of Indonesia’s policy dashboard is likely to broaden away from focusing on domestic growth and inflation, but to include financial stability and outflow risks, opening up the way to a start of the bull cycle from July,” said Radhika Rao, senior economist at DBS Bank.
Still, a significant minority, 9 out of 32, expect BI to join other Asian peers and hike rates by 25 basis points to 3.75%.
“Unless the current pressure on the IDR eases as the BI meeting approaches, it would be more prudent to proceed with a rate hike, or at least send clear signals that a rate hike rate is close,” said ANZ economist Krystal Tan, who forecast a 25 basis point hike.
“Failure to change position could result in BI being perceived as the ultimate regional laggard and intensifying the pressure on the IDR.”
The currency of Southeast Asia’s biggest economy has fallen nearly 4% this year, half of it in the past week, sparking concerns over inflation mattering in a country of more than 270 million people .
Until recently, price pressures were relatively weak. But soaring global energy and food prices pushed inflation close to the upper band of the BI target, hitting 3.55% in May, the highest rate in more than four years. .
Governor Perry Warjiyo acknowledged at the May policy meeting that inflation will exceed the target range this year, but predicted that it will subside next year.
“The upward trajectory is expected to continue due to other factors, including rising food prices and the pass-through from rising input costs and minimum wages,” Nomura economists expect. inflation exceeds 4% at the end of the third quarter.
Polling medians show the BI, which meets monthly, will kick off its rate hike cycle next quarter, delivering a total of 50 basis points by the end of Q3 to reach 4.00%.
Of those expecting the first hike in Q3, 7 of 17 economists expect BI to rise 25 basis points, 8 predict 50 basis points while 2 expect 75.
But BI will not be aggressive in this cycle, according to the poll. Its policy rate is expected to increase by a total of 75 basis points to reach 4.25% by the end of the year and end the year 2023 at 5.00%.