Bank Indonesia forecast to hold rates at 5.75% for rest of 2023

By Sujith Pai and Veronica Dudei Maia Khongwir

BENGALURU (Reuters) – Bank Indonesia is expected to keep its key interest rate unchanged at 5.75% for a third consecutive meeting on April 18 and for the rest of this year as it evaluates the impact of previous hikes on inflation, a poll this week by Reuters found.

Inflation has been largely cooling since September, but March’s reading of 4.97% was still above Bank Indonesia’s target range of 2%-4%, which the central bank established in 2005.

But at the March meeting the Indonesian central bank stuck by its previous message that hikes – 225 basis points between August to January – were sufficient to steer inflation back within the target range later this year.

All 30 economists in the April 10-13 Reuters poll expected no change to the 5.75% seven-day reverse repurchase rate, already the highest since July 2019.

A majority of economists in the survey predicted the policy rate to stay at the same level for the rest of 2023. Only a handful expected a rate cut this year.

“It (BI) has made clear that current settings are sufficient to manage inflation, and the latest inflation prints support its view, with both headline and core inflation easing in March,” said Krystal Tan, economist at ANZ.

“There is little pressure for rate hikes from the external front too, with the odds of a very hawkish Fed diminishing and the IDR strengthening. By the same token, there is no urgency for an easing pivot either.”

Most major central banks including the U.S. Federal Reserve were expected to pause their policy tightening cycles soon to assess the impact past hikes have in bringing down inflation.

Nearly two-thirds of respondents, 12 of 19, forecast BI to reduce rates by at least 25 basis points in or before the first quarter of 2024, with the median forecast putting it at 5.50%.

Bank Indonesia expects inflation to return to its target range in September, but in the Muslim-majority country, inflation typically rises during Ramadan, which concludes this month, due to increased shopping and consumption.

Inflation was expected to average 4.0% this year and then fall to 3.2% next – close to the mid-point of BI’s target range.

While a commodities-led export boom helped Indonesia’s economy last year, economists expected growth to be more moderate as tighter monetary policy across the world weighs on global demand.

Economic growth was expected to slow to 4.9% this year from 5.3% in 2022. It was then expected to grow 5.0% next year.

(For other stories from the Reuters global long-term economic outlook polls package:)

(This story has been refiled to remove a typographical error in paragraph 3)

(Reporting by Sujith Pai and Veronica Khongwir; polling by Madhumita Gokhale and Anant Chandak; Editing by Hari Kishan, Jonathan Cable and Alexander Smith)