Financial basis

Bank Indonesia to hold rates in June but start to hike next quarter: Reuters poll

FILE PHOTO: The logo of Bank Indonesia is seen at the headquarters of Bank Indonesia in Jakarta, Indonesia September 2, 2020. REUTERS/Ajeng Dinar Ulfiana

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  • Decision on BI rates expected on Thursday, June 23, around 07:00 GMT

BENGALURU, June 21 (Reuters) – Bank Indonesia will leave its key rate unchanged at 3.50% on Thursday, but more than a quarter of economists polled in a Reuters poll expect a rate hike to stem the inflation imported from a weak rupee as the US Federal Reserve tightens aggressively.

Indonesia’s central bank is one of the few major Asian central banks not to have raised rates from a pandemic record high since inflation held within its target range of 2% to 4%.

But a Fed rate hike of 75 basis points last week and the prospect of more aggressive measures in the coming months sent the rupee down 2%, its worst weekly performance in nearly three years.

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Still, 23 of 32 economists in the latest June 13-20 poll predicted the central bank would keep its benchmark seven-day reverse repurchase rate (IDCBRR=ECI) at a record high of 3.50% at its meeting. June 22 and 23.

“Bank Indonesia’s policy dashboard is likely to broaden from a focus on domestic growth and inflation, to financial stability and exit risks, paving the way for a start up 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 ahead of the BI meeting, the most prudent move is a rate hike, or at least clear signals that a rate takeoff is near,” he said. Krystal Tan, an economist at ANZ, who predicts a 25 basis point hike.

“Failure to change position could risk BI being perceived as the big regional laggard and intensifying the pressure on the IDR.”

The currency of Southeast Asia’s largest economy has fallen nearly 4% this year, half that of last week, raising concerns about imported inflation in a country of more than 270 million inhabitants.

Until recently, price pressures were relatively muted. But soaring global energy and food prices pushed inflation near the upper range of the BI target, hitting 3.55% in May, the highest in more than four years.

Governor Perry Warjiyo acknowledged at the May policy meeting that inflation would exceed the target range this year, but predicted it would cool next year. Read more

“The upward trajectory is likely to continue due to other factors, including rising food price inflation and the pass-through from soaring input costs and rising minimum wages,” the officials noted. Nomura economists, who expect inflation to exceed 4% by the end of the third quarter. .

Polling medians showed that BI, which meets monthly, will kick off its rate hike cycle next quarter, delivering a total of 50 basis points by the end of the third quarter at 4.00%.

Among those expecting the first hike in Q3, 7 out of 17 economists predict a BI increase of 25 basis points, 8 predict 50 basis points while 2 expect 75.

But BI will not be aggressive this cycle, according to the poll. Its policy rate is expected to rise a total of 75 basis points to 4.25% by the end of the year and end 2023 at 5.00%.

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Reporting by Arsh Tushar Mogre and Shaloo Shrivastava; Poll by Anant Chandak and Devayani Sathyan; Editing by Ross Finley and Bernadette Baum

Our standards: The Thomson Reuters Trust Principles.