BI Preview: Forecasts from six major banks, hiking 25 bps to contain inflation expectations

Bank Indonesia (BI) will hold its monthly governor board meeting on Thursday, September 22 at 07:00. Here you can find the expectations as forecast by the economists and researchers of six major banks regarding the upcoming central bank's rate decision. 

BI is expected to hike rates by 25 basis points to 4% but there are a few analysts who look for a larger 50 bps move. 

ANZ

“We expect BI to hike the policy rate by 25 bps amid rising inflation pressures. Inflation is likely to continue rising as the impact of the hike to fuel prices on 3 September continues to filter through to other goods and services. The government estimates that inflation will end 2022 at 6.6-6.8%, which is broadly in line with our own projections. We expect inflation to return to BI’s target band of 2-4% in H2 2023. However, aggressive rate hikes are unlikely to be on the cards. The IDR’s outperformance relative to regional peers and still sizeable trade surpluses also reduces the impetus for larger hikes. Overall, our baseline scenario is for BI to increase its policy rate in steps of 25 bps until it reaches a terminal rate of 5.25% (in Q1 2023).”

Standard Chartered

“We expect BI to hike the 7-day reverse repo rate by 25 bps to 4.0% to contain inflation expectations from the recent increase in subsidised fuel prices, following the pre-emptive 25 bps hike in August. We expect BI to hike by a total of 75 bps to 4.5% by the end of this year, as we think it will want to maintain positive real rates adjusted for core inflation (we expect core inflation to reach 4% in 2022). We expect BI to maintain a gradual pace of interest rate hikes, given a relatively stable IDR and likely contained core inflation.”

ING

“BI surprised markets with a rate hike at its August meeting and we can’t rule out another surprise. We expect BI to hike 50 bps. Headline inflation has just recently moved past the central bank’s target and we can expect this trend to continue after its fuel price hike. BI Governor Perry Warjiyo, however, did rule out ‘jumbo-sized’ rate hikes, possibly referring to the 75 bps rate hikes carried out by the Fed.” 

TDS

“After the surprise move last month, we expect BI to hike by 25 bps again to keep a cap on price pressures. Core inflation is trending higher and may be indirectly affected by the 30% increase in fuel prices.”

SocGen

“Our immediate call is for another 25 bps rate hike – lifting the policy rate to 4.0% from 3.75%. The hike in fuel prices and multiple rounds of pass-through will likely lead to a sharper spike in inflation ahead. Not only do we see core inflation rising, we also expect the price hike to lead to higher food prices, reversing the recent easing that saw headline inflation drop from 4.9% in July to 4.7% in August. We expect BI to be rather aggressive, though it may not frontload rate hikes and opt for incremental changes.”

OCBC

“Helped by the current account stability due to coal-related receipts, the Indonesian rupiah has stayed remarkably resilient, even in the face of renewed USD strength. Such an environment cannot be taken for granted, especially if the central bank were to somehow dismiss the need to hike policy rate further to fight against the fuel-driven inflation risk. Hence, we see BI hiking rate by 25 bps.”