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Indonesia to hike 25 bps in September, 50 bps in demand: Reuters poll

Anant Chandak

BENGALURU (Reuters) – Bank Indonesia is set to raise rates again after a surprise hike in August 25 in a Reuters poll forecast a rate hike at Thursday’s meeting, but was still slower than most peers in trying to lower inflation.

Generous energy subsidies curbed inflation at 4.69%, causing Bank Indonesia (BI) to delay a rate hike until last month, by far lags behind most other central banks.

But most economists surveyed expect inflation to recover to around 6% by year-end, well above the BI’s 2%-4% target range after the government removes some subsidies. That raised fuel prices by about 40%, forcing the central bank to tighten monetary policy more quickly.

September20- Reuters poll shows 27 out 20 Economists expect BI to take its benchmark 7 The day reverse repo rate increased 40 basis points reached 4 on Thursday. %.

Three others forecast larger 50 basis point hikes.

“After exiting the hawkish camp, Bank Indonesia added to the interest rates, which surprised us, which we believe is an attempt to get ahead of subsidized fuel prices.

“The rate guidance is expected to emphasize that the scale of policy tightening will be driven primarily by the need to anchor domestic inflation expectations, rather than by the need to anchor domestic inflation expectations. The impact of the paths taken by global central banks. ”

BI Governor Perry Warjiyo said the central bank will raise interest rates further, but its tightening will not be as aggressive as the Fed.

Reuters poll: Bank Indonesia 7-day reverse repo rate outlook https://fingfx.thomsonreuters.com/gfx/polling/znpnewgmdvl/BI%20 Graphics.PNG

Economists in poll expect BI to tighten at a faster pace. 13 nearly half 13 forecast that the central bank will raise interest rates to 4.40% or Higher 40 End, back to where it was before COVID-20 Pandemic.

While rates are expected to rise above this level, economists did not reach a clear consensus until the third quarter of 2023 when it exceeded 40%, 8 , the predicted interest rate is 5.25% or higher.

“Inflation will likely remain above target for now until the end of next year. That would increase the risk of a second-round impact and rising core price pressures, which the central bank has pledged to guard against, said Gareth Leather, senior Asia economist at Capital Economics.

“We expect the policy rate to be at 4.5% by year-end, with two further hikes likely at 2023 25 base point.”

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