Bank Indonesia (BI) will keep its key interest rate unchanged at 6.00 percent until at least the middle of next year following a surprise 25 basis point hike on Oct. 19, a Reuters poll found.
Even though inflation is at the bottom-end of the central bank’s 2-4 percent target range, Governor Perry Warjiyo said last week’s surprise hike was intended to stabilise the battered rupiah and minimise its influence on consumer inflation.
Despite the surprise hike, on Monday the rupiah fell to its weakest against the U.S. dollar since April 2020, during the start of the COVID pandemic. That suggests the central bank may again struggle to curb the currency’s weakness, as it did in 2018 during a U.S.-China trade spat.
Nearly two-thirds of economists, 15 of 24, in the Oct. 20-25 Reuters poll expected BI to keep its benchmark seven-day reverse repurchase rate at 6.00 percent at the Nov. 23 meeting. The remaining nine expect a quarter-point hike to 6.25 percent then.
One economist expects the next rate rise to come in December, while another expects a follow-up hike to 6.50 percent then.
Pantheon stuck to their view BI will start gradually easing policy in December with a 25 basis point cut.
Median forecasts showed rates staying at 6.00 percent until mid-2024 and the first 25 basis point rate cut in Q3 2024, later than predicted in the previous poll taken before the surprise move.
“The central bank’s mandate of rupiah stability took precedence at the October rate review,” said Radhika Rao, senior economist at DBS Bank.
“In a move that is reminiscent of its hawkish posture in 2018, we expect the authorities to keep the door open for further policy tightening to mitigate risks from a higher U.S. terminal rate and support the domestic BOP (balance of payments) position.”
