BI Preview: Forecasts from five major banks, unchanged on improving risk sentiment

Bank Indonesia (BI) will hold its monthly governor board meeting on 23-24 August. Here you can find the expectations as forecast by the economists and researchers of five major banks regarding the upcoming central bank's decision. 

BI is expected to keep rates steady at 3.5%. However, nearly a quarter of the 22 analysts polled by Bloomberg look for a 25 bps hike to 3.75%.

ANZ

“BI will not commence its rate lift-off. The strengthening of the IDR over the past month and the absence of a US Fed policy meeting in August both reduce the impetus for BI to act in the very near-term. Still, we believe that pandemic-era stimulus is no longer warranted in Indonesia. We expect BI’s rate lift-off to start in September when the planned hikes to the reserve requirement ratio would have been fully implemented.”

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 growth recovery. According to a recent statement by BI’s governor, the central bank is not in a hurry to hike rates; we think this is due to the recent strengthening of the IDR and still-low core inflation. Going forward, we think monetary policy will be data-dependent, with policymakers watching the impact of a growth recovery on inflationary pressure and the external balance through higher imports. We maintain our call for a rate hike in September, but acknowledge the risk of a delayed hike towards year-end should an improving external environment continue to provide a tailwind to IDR appreciation.”

ING

“We could see BI Governor Perry Warjiyo whipping out a surprise 25 bps rate increase after staying on hold for all of 2022. BI has held firm despite tightening from regional players, indicating that inflation has stayed ‘manageable’. Recently, however, plans to decrease the energy subsidy, floated by President Joko Widodo, suggest that the price of subsidised fuel could increase in the near term. A jump in fuel prices could be enough to nudge core inflation past the target and this could be reason enough for BI to hike rates as early as this week.”   

UOB

“We expect inflation expectations to continue building up, and look for BI to hike its benchmark interest rates as early as August by 25 bps. Our forecast is for two 25 bps hikes in Q3 2022 to 4.00%, followed by another two 25 bps hikes in Q 2022 to 4.50%.”

TDS

“While July headline inflation rose to 4.9% YoY, core inflation was modest at 2.86% YoY and within BI's 2-4% target range. From BI's lens, core inflation may still appear as manageable and BI may not signal a hawkish pivot yet and reiterate their focus on FX stability and the economy. Further, BI's Governor recently commented that BI is in no rush to increase interest rates.”