BENGALURU: Bank Indonesia will leave its key interest rate steady at 3.5 per cent on Thursday (Jun 23) but over one-quarter of economists in a Reuters poll expect a rate rise to stem imported inflation from a weak rupiah currency as the US Federal Reserve tightens aggressively.
Indonesia’s central bank is one of a few major Asian central banks that has not raised rates from a pandemic record low since inflation has held within its target range of 2 to 4 per cent.
But a 75-basis-point Fed rate rise last week and the prospect of more aggressive moves in the coming months sent the rupiah tumbling by 2 per cent, its worst weekly performance in nearly three years.
Still, 23 of 32 economists in the latest poll taken Jun 13-20 predicted the central bank will keep its benchmark seven-day reverse repurchase rate at a record low of 3.5 per cent at its Jun 22-23 meeting.
“Bank Indonesia’s policy dashboard is likely to broaden from being focused on domestic growth and inflation, to include financial stability and outflow risks, paving the way for a start to the hiking cycle from July,” said Radhika Rao, senior economist at DBS Bank.
Still, a significant minority, nine of 32, expect BI to join other Asian peers and hike rates by 25 basis points to 3.75 per cent.
“Unless the current pressure on the IDR abates in the lead-up to BI’s meeting, the more prudent move is a rate hike, or at least clear signals that a rate lift-off is near,” said Krystal Tan, economist at ANZ, who forecasts a 25 basis point rise.
“The absence of a change in stance could risk BI being perceived as the standout regional laggard and intensify pressure on the IDR.”
The currency of Southeast Asia’s largest economy has fallen nearly 4 per cent this year, half of that last week, raising concerns about imported inflation in a country of over 270 million people.
Until recently, price pressures have been relatively tame. But soaring global energy and food prices have pushed inflation close to the upper band of the BI’s target, hitting 3.55 per cent in May, the highest in over four years.
Governor Perry Warjiyo acknowledged at the May policy meeting that inflation will rise above the target band this year but predicted it will cool next year.
“The upward …….