BI Preview: Forecasts from four major banks, raising rates but unlikely to be aggressive

Bank Indonesia (BI) will hold its monthly governor board meeting on Thursday, October 20. Here you can find the expectations as forecast by the economists and researchers of four major banks regarding the upcoming central bank's rate decision. 

BI is expected to hike rates by 50 basis points (bps) to 4.75%. However, some analysts see a smaller 25 bps move. At the last policy meeting on September 22, the bank hiked rates by 50 bps to 4.25%.


“We expect the central bank to raise the policy rate by 25 bps in the next meeting in October and follow that up with additional 25 bps rate hikes in the next two months, taking the year-end policy rate to 5.0%. We also expect BI to raise the policy rate by another 75 bps in 2023, taking the terminal rate to 5.75%. While we expect a 25 bps hike at the upcoming policy meeting, a bigger hike might be required to insulate the IDR from further weakness. A higher-than-expected rate increase by BI could exacerbate the widening of the front-end bond yield differential.”


“With the IDR under pressure, reserves falling and price pressures building, we think the odds are tilted in favour of BI maintaining a ‘pre-emptive’” stance and delivering a 50 bps hike. Stabilising the IDR was one of the factors cited behind September’s decision to go with an outsized hike, and the current IDR weakness, coupled with a thinning reserve buffer, will raise the impetus for another assertive response. The continued rise in price pressures as the impact of the hike to fuel prices in September continues to filter through to other goods and services also adds to the case for front-loading rate hikes, not least because monetary transmission tends to lag by about four quarters according to BI estimates.”

Standard Chartered

“We expect BI to hike the 7-day reverse repo rate by 25 bps to 4.5% to maintain IDR stability amid aggressive Fed hikes and rising inflation expectations from the increase in subsidised fuel prices. The large increase in the Fed rate will narrow Indonesia’s interest rate premium, likely affecting IDR stability. We think BI may need to continue hiking the policy rate to anchor IDR stability, as the interest rate spread is diminishing and FX reserves are declining. While domestic inflation is rising, it remains under control. Inflation rose to 6% in September, below our expectation, due to lower food prices. We expect BI to hike by a total of 75 bps to 5% by the end of this year.”


“BI will likely tighten monetary policy again. Accelerating inflation and depreciation pressure on the Indonesian rupiah will likely convince Governor Perry Warjiyo to hike aggressively and increase policy rates by 50 bps.”


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