BI Preview: Forecasts from six major banks, raising rates but unlikely to be aggressive

Bank Indonesia (BI) will hold its monthly governor board meeting on Thursday, November 17. 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.  

Bank Indonesia is expected to hike rates by 50 basis points to 5.25%. At the last policy meeting on October 20, the bank hiked rates 50 bps to 4.75%

Standard Chartered

“We expect BI to hike the 7-day reverse repo rate by 25 bps to 5.0% to maintain IDR stability and contain imported inflation. With the inflation impact of the subsidised fuel price adjustment appearing softer than expected and economic growth momentum staying upbeat in Q3, BI will likely focus on maintaining IDR stability. We think BI will need to continue hiking the policy rate to calibrate IDR pricing with Fed hikes, while at the same time reducing excess liquidity to accelerate monetary policy transmission. Accelerated government spending towards year-end and the burden-sharing programme should boost liquidity, dampening the effectiveness of a higher policy rate on IDR pricing, as reflected in sticky low IDR deposit rates.”

ING

“BI will likely hike rates by 50 bps to help steady the Indonesian rupiah, which has been under some pressure of late. The third-quarter GDP growth report was better than expected, giving the central bank some room to be aggressive with its tightening now that core inflation is moving higher.”

ANZ

“We have pencilled in a 50 bps rate hike at BI’s upcoming meeting. Admittedly, recent inflation data per se does not call for aggressive rate hikes. The headline number eased, and while core inflation continued to rise, the pass-through from earlier fuel price adjustments has been weaker than previously anticipated. That said, stabilising the IDR has become an increasingly important consideration; a hawkish US Fed gives BI impetus to maintain an assertive response to cap downward pressure on the currency, which has underperformed regional peers over the past month. Recent Q3 GDP data which showed robust economic activity and October’s consumer survey that pointed to robust sentiment could give BI confidence to deliver another outsized hike.”

TDS

“BI is likely to step down to 25 bps hiking steps given the downside surprise in headline inflation. The rebound in IDR strength also lessens the need for BI to continue with outsized hikes to support IDR.”

SocGen

“We see a possibility of BI extending the debt monetisation scheme to 2023. Also, in an effort to improve the relative attractiveness of real yields, BI has brought forward its target of bringing core inflation back to the 3.0% level from 3Q23 to 1Q23. This will require it to continue to be aggressive on rate hikes (given the assumed lag in the effect of monetary policy actions on the real economy) and hence we expect it to announce another 50 bps rate hike, taking the policy rate to 5.25%. The near-term risks remain skewed to the upside in USDIDR as the focus remains on inflation and a tighter Fed policy for longer.” 

MUFG

“We forecast a 25 bps to bring the 7-day reverse repo rate to 5.00%. This comes amid easing but still elevated price pressures. Inflation eased to 5.71% YoY in October from 5.95% a month ago. This showed easing food price pressures. Still, core inflation rose to 3.31%YoY in October compared to 3.21% prior.”