BI Preview: Forecasts from four major banks, hiking by 25 bps but the end is near

Bank Indonesia (BI) will hold its monthly governor board meeting on Thursday, January 19. 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 25 basis points to 5.75%. At the last policy meeting on December 22, the bank hiked rates by 25 bps to 5.5%.

ANZ

“We expect BI to stick with this measured approach with another 25 bps hike. Domestic inflation dynamics remain reasonably benign and do not warrant outsized rate hikes. A downshift by the US Fed also gives BI scope to move gradually. Overall, we expect the central bank to match the US Fed with two 25 bps hikes in Q1 2023 given its FX stability mandate, thereby taking BI’s terminal policy rate to 6.00%. A sustained rebound in the IDR would raise the odds of an earlier stop at 5.75%.”

Standard Chartered

“We expect BI to increase the 7-day reverse repo rate by 25 bps to 5.75% to maintain an attractive interest rate spread against US rates, supporting IDR stability. The recent resumption of foreign inflows to the bond market and slowing Fed hikes have driven IDR appreciation, likely reducing the urgency to hike policy rates. However, we think BI may opt to stay cautious and hike, delivering the last rate increase of this cycle. We think BI will continue with its mixed policy approach, with macroprudential policy set to support growth, while monetary policy focuses on macro stability. Furthermore, BI is likely to combine tight monetary policy with FX measures (i.e., higher interest rates for exports proceeds placement onshore) to prevent overtightening of monetary policy.”

ING

“We expect Governor Perry Warjiyo to start the year with a rate hike to support the Indonesian Rupiah. Softer inflation reported in the past few months and fading growth momentum suggest that BI will likely opt for a 25 bps rate increase which would widen interest rate differentials to support the currency.”

SocGen

“We expect the BI to deliver a final 25 bps hike, with a terminal rate of 5.75%.”