BENGALURU- Indonesia’s central bank will raise rates faster than thought just a month ago as concerns mount about a weaker rupiah as the Federal Reserve gears up to increase its own interest rate next month amid soaring US inflation, a Reuters poll showed.
But unlike many major economies, Indonesian inflation has largely remained benign, only inching up to 2.18 percent in January after spending most of the previous two years below Bank Indonesia’s (BI) target range of 2 percent-4 percent.
All 26 economists polled Feb. 2-7 expected BI to hold its benchmark seven-day reverse repurchase rate at a record low of 3.50 percent at the conclusion of its policy meeting on Thursday.
Over one third of respondents, 8 of 20, expected a hike as soon as next quarter but medians in the latest poll predicted 50 basis points of tightening in July-September, compared to 25 basis point increases in the third and fourth quarter in a January poll.
“If inflation is picking up and the external pressure is stronger from previous expectations, they (BI) need to adjust their rates as well by 50 basis points in the third quarter,” said IrmanFaiz, an economist at Bank Danamon.
Although the median forecast was for no move in the final quarter, economists’ predictions were on a knife edge.
Eight of 17 respondents saw BI’s key interest rate at 4.25 percent or higher – two said 4.50 percent. Another six said 4.00 percent, two said 3.75 percent and one respondent said BI would keep it on hold all year at the current 3.50 percent.
