Hike rates

Bank Indonesia to hike rates in Q3, end year at 4.00% – Reuters poll

BENGALURU: Indonesia’s central bank will only raise rates from record highs in the third quarter, several months after a widely expected U.S. Federal Reserve rate hike this week, according to a Reuters poll.

So far, price increases in Southeast Asia’s largest economy have remained benign. But Russia’s invasion of Ukraine has triggered a spike in global energy and food prices that will make it harder for Bank Indonesia to contain inflation.

Economists in the March 7-14 Reuters poll nonetheless kept their rate forecast largely unchanged from last month’s poll.

With economic growth yet to recover to pre-pandemic levels, BI will keep its benchmark seven-day reverse repurchase rate unchanged at a record high of 3.50% at its March 17 meeting, the officials said. 20 economists interviewed.

More than a third of respondents (seven out of 20) expected a hike as early as next quarter, but the median forecast was for a 25 basis point hike to 3.75% in July-September.

“Policymakers should watch geopolitical risks on the one hand, and the speed and magnitude of U.S. Fed policy hikes on the other,” said Radhika Rao, senior economist at DBS.

“In addition to tighter global financial conditions, we expect inflation to pick up – geopolitical risks add to this concern – and the need for financial sector stability will prompt policymakers to raise national rates from mid-term onwards. ‘year.”

Most economists expected a tightening and saw the interest rate hit 4.00% by the end of the year.

Among respondents in a smaller sample, who had forecasts through the end of next year, five out of nine saw rates reach 4.75% or more.

In a sign that the central bank is watching for potential jolts in Indonesian markets from expected Fed tightening this week, Governor Perry Warjiyo announced three planned reserve requirement rate increases in March, June and September to contain liquidity.

Most economists said Indonesia would fare better than during the previous US tightening as the Indonesian economy benefits from a global commodity boom, which has kept the rupiah relatively stable and improved the balance of payments. from the country.

“Despite the uncertainty caused by the war in Ukraine and the shift to tighter monetary policy in the United States, the rupiah has held up well. As long as this remains the case, the central bank will be in no rush to tighten,” Gareth Leather, senior Asia economist at Capital Economics, said.

(Reporting by Vivek Mishra; Polling by Tushar Goenka and Arsh Mogre; Editing by Barbara Lewis)