BENGALURU- Bank Indonesia (BI) will leave its key interest rate unchanged at 5.75 percent on Thursday, attempting to mark an end to a short six-month long hiking cycle even as US and European policymakers continue tightening policy, a Reuters poll of economists found.
Inflation in Southeast Asia’s largest economy hit a seven-year high of 5.95 percent in September amid rising global food and energy prices but slowed to 5.28 percent in January.
BI expects inflation to return to its 2 percent to 4 percent target range in the second half of this year, providing the central bank space to assess the impact of previous rate hikes were having on household spending and inflation.
At the Jan. 19 meeting, Governor Perry Warjiyo said interest rates were already at adequate levels to bring down inflation, suggesting BI’s policy tightening was done.
That stands in sharp contrast with the US Federal Reserve, which has been raising rates for nearly a year and is expected to hike by 25 basis points at least twice more.
A strong majority of respondents, 26 of 30, in the Feb. 7-13 Reuters poll expected BI to keep its benchmark seven-day reverse repurchase rate unchanged at 5.75 percent on Thursday. The remaining four forecast a 25 basis point rise.
“The governor has already mentioned he sees the current rate as a sufficient level, even though he didn’t explicitly mention he will stop (raising). But it was a signal they are going to pause,” said Irman Faiz, economist at Bank Danamon, noting core inflation slipped to 3.2 percent in January.
A separate Reuters poll a few weeks ago showed gross domestic product (GDP) growth will average 4.8 percent in 2023, down from 5.31 percent in 2022. Inflation was also forecast to fall below BI’s 4.00 percent upper target band by end-September.
A like-for-like analysis of the latest poll and last month’s survey showed more than half of respondents had lowered their peak rate projection for the first quarter of 2023 to 5.75 percent from 6.00 percent. — Reuters
