BI Preview: Forecasts from four major banks, earlier-than-anticipated rate hikes are possible

Bank Indonesia (BI) will hold the monthly governor’s board meeting on March, 16-17. Here you can find the expectations as forecast by the economists and researchers of four major banks regarding the upcoming central bank's decision. 

The BI is set to hold its benchmark seven-day reverse repurchase rate unchanged at a record low of 3.50%.

Standard Chartered

“We expect BI to keep the policy rate at 3.5% to anchor IDR stability and inflation expectations. A likely 25bps Fed rate hike next week is fully anticipated by the market and unlikely to trigger volatility. BI may highlight increasing inflation risk due to the Russia-Ukraine crisis, which could accelerate the domestic rise in inflation. That said, we think the nascent recovery, low inflation, government subsidies and a manageable external balance will allow BI to maintain rates for the time being. BI may strengthen its coordination with the government to manage cost-push inflation, especially through domestic food and energy price adjustments. We maintain our call of the first 25bps BI rate hike in Q3-2022 and another 25bps hike in Q1-2023. We see a risk of an additional hike this year if supply-side inflation feeds into higher inflation expectations.”

ANZ

“We expect BI to keep the policy rate unchanged. BI has started to hike the reserve requirement ratio for banks in phases, but the central bank has emphasised that the policy rate will be kept low until there are clear signs of inflation breaching the target. This condition for rate hikes has yet to be met. BI had previously signalled that it expects to start assessing price pressure more thoroughly in Q3 2022, but given recent commodity price moves, any shift in BI’s commentary on inflation will be of particular interest. While our baseline is for BI’s first rate hike to materialise in Q3-2022, the risk of an earlier move in Q2 2022 has climbed, given the upside risks to inflation, the likelihood of further US Fed hikes and BI’s focus on stability.”

ING

“BI is widely expected to keep rates unchanged. Despite the pause, we do expect BI to highlight inflation as a growing concern, with a possible shift in tone to prepare markets for a potential reversal in its stance should the ongoing Russia-Ukraine conflict spark inflationary pressures in the coming months.”

TDS

“BI could highlight that rising commodity prices pose upside risks to its inflation outlook amid the Ukraine war. However, we think BI is not in a rush to hike as downside risks to growth remain.”