Bank Indonesia to maintain rates in December but rise quarterly: Reuters poll Reuters

Author: Tushar Goenka

BENGALURU (Reuters) – Bank of Indonesia is confident that interest rates will remain stable on Thursday as inflation remains good for the time being, according to economists in a Reuters poll that predicted the first rise in the third quarter of 2022.

The Indonesian central bank announced in November that it would keep interest rates low until it saw inflation rise. At 1.75% last month, the highest since June 2020, inflation is still below the BI target of 2-4%.

All 21 economists from December 6 to 10 did not anticipate any change in BI’s seven-day reverse purchase rate, currently at 3.50%, at its December 16 meeting.

Median showed that BI would raise its seven-day reverse purchase rate by 25 basis points in the third quarter of 2022 and again in the last three months of the year, bringing the benchmark interest rate to 4.00% by the end of 2022.

Last month’s poll predicted a first rate hike in the next quarter.

“Fortunately for BI, very good inflation should be comfortable until at least the first half of next year, after which we expect the central bank to raise the first rate as the economy recovers and inflation with low statistical base effects rises.” wrote economist Kunal Kundu Societe Generale (OTC 🙂 in a customer note.

Another Reuters poll predicted inflation would rise in Southeast Asia’s largest economy, but it will remain below the central bank’s upper limit until at least mid-2023.

The timing of BI’s first move coincides with that of the US Federal Reserve, which according to another Reuters poll is expected to start raising rates in the quarter next year.

The US central bank has said it is open to speeding up the completion of its bond-buying program, and analysts say the Indonesian rupiah – which has already fallen by 2% a year against the dollar – could suffer further weakness.

“The rupee will gradually appreciate … faster tapering and rate hikes (Fed) effects on Asian currencies, including the rupee, will be hijacked by volatility,” said UOB economist Enrico Tanuwidjaja.

“The economy has double deficits, making the rupee more sensitive to capital outflows.”

BI has put more than Rs 860 trillion ($ 59.85 billion) into the financial system since last year and has cut rates by a total of 150 points to smooth the impact of COVID-19 and related cuts.

($ 1 = Rs 14,370,000,000)