POLL-Bank Indonesia to raise policy rate in next quarter as inflation risk rises

Band Devayani Sathyan and Shaloo Shrivastava

BANGALURU, April 14 (Reuters)Bank Indonesia to hike interest rates in next quarter on expectations of US Federal Reserve hawkish stance and rising inflation, Reuters poll showed faster-than-expected moves from the central bank this year.

However, Governor Perry Warjiyo on Wednesday reiterated his commitment to keeping interest rates unchanged, even as the Bank of Indonesia (BI) sees a risk of more rapid monetary tightening in the United States amid an economic downturn. high global inflation.

But Indonesia’s consumer price index (CPI) fell from 2.1% in February to a two-year high of 2.6% in March due to high food price inflation. While that was still within BI’s target range of 2% to 4%, economists say inflation is likely to rise slightly.

A spike in global energy and food prices due to Russia’s invasion of Ukraine – some of which has already been passed on to premium fuel – and a pick-up in demand during the Ramadan holidays in April and May are expected to push inflation higher.

“We believe that the combination of an increasingly hawkish US Fed and mounting pricing pressures will make it harder for BI to remain as patient as it would have liked,” said Krystal Tan, economist at ANZ.

“March data showed inflation accelerating and price pressures widening, and inflation is expected to pick up further in April given the VAT rate hike and price hikes. Pertamax fuel.”

While BI was unanimously expected to maintain its benchmark seven-day reverse repurchase rate IDCBRR=ICE at a record high of 3.50% after the April 18-19 policy meeting, rates were expected to rise faster than previously thought.

The latest Reuters poll from April 6-13 showed interest rates would rise to 4.00% and 4.25% in the third and fourth quarters, from 3.75% and 4.00% expected in a poll of March. Five participants even predicted a rate hike of 25 basis points to come as early as May or June.

“BI could advance the start of its rate hike cycle to this quarter if the US Fed’s decision to raise rates early in the second quarter fuels a further rise in yields and the dollar … depressing regional currencies, especially the rupee,” said Radhika Rao, senior economist at DBS Bank.

The US federal funds rate is now set to end 2022 at 2.00%-2.25%, including two 50 basis point hikes in May and June, according to another Reuters survey. ECILT/USA

Inflation forecasts for the Indonesian economy rose significantly to 3.3%, 3.8% and 4.1% for the second, third and fourth quarters, from 2.8%, 3.3% and 3, 0% in a poll conducted in January.

“Current circumstances lead to headline inflation of 4% by year-end, possibly even exceeding BI’s upper target,” said Irman Faiz, macroeconomic analyst at Bank Danamon.

“If inflation picks up faster than expected, we see BI also raising rates sooner than expected.”

While inflation is expected to average 3.4% and 3.2% in 2022 and 2023, the economy is expected to grow by 5.2% over the two years.

(Reporting by Devayani Sathyan and Shaloo Shrivastava; Polling by Swathi Nair and Arsh Tushar Mogre; Editing by Bernadette Baum)

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