BI Preview: Forecasts from six major banks, vigilant on external risk

Bank Indonesia (BI) will hold the monthly governor board meeting on 22-23 June. Here you can find the expectations as forecast by the economists and researchers of six major banks regarding the upcoming central bank's decision. 

The BI is expected to hold its benchmark seven-day reverse repurchase rate unchanged at 3.50%, however, there is still a slim chance to see a 25 bps hike to 3.75%.

ANZ

“BI’s upcoming rate decision will probably boil down to how the IDR holds up. Unless the current pressure on the IDR abates in the lead-up to the meeting, we think the more prudent move is a rate hike or at least clear signals that a rate lift-off is near. The absence of a change in stance could risk BI being perceived as the standout regional laggard and intensify pressure on the IDR.”

Standard Chartered

“We expect BI to maintain the 7-day reverse repo rate at 3.5% to anchor IDR stability and keep financing costs low to support the recovery. BI is likely to sound more vigilant amid aggressive Fed policy normalisation, highlighting its commitment to maintain macroeconomic stability. We think BI will maintain its current policy settings of responding to tighter external financing by accelerating IDR liquidity absorption through (1) faster RRR hikes, (2) intervening in the spot and domestic NDF markets to stabilise the IDR, and (3) continuing to allow higher bond yields to respond to spikes in UST yield. We maintain our view that BI’s first policy rate hike will be in Q3, which will be preceded by a normalisation of the open market operations (OMO) curve.”

TDS

“We expect BI to deliver a hawkish hold as it just upgraded its headline inflation forecast which we think is a signal to gradually tune markets to a shift in policy stance to a likely hike in July.”

ING

“We expect BI to finally deliver a rate hike although Governor Perry Warjiyo may opt to start off the hiking cycle with a token 25 bps increase, citing the simultaneous increase in reserve requirements.”

SocGen

“We expect the BI to stay put for one last time though a hike cannot be ruled out. With the peak inflation theory falling through and the Fed finally raising the policy rate by 75 bps as inflation spiked beyond expectations, the BI may find it difficult to continue to hold on as global risk-off sentiment rises further. However, we expect the BI to stay pat during its June meeting and eventually start raising the policy rate starting from 3Q22.”

BBH

“Headline inflation rose 3.55% YoY in May, the highest since December 2017 and near the top of the 2-4% target range. We think this lays the groundwork for liftoff this week. If not, then the next meeting on July 21.”