Title: Bank Indonesia to hold rates in June but start hiking next quarter

Jun 21, 2022 01:51AM ET

By: AnalysisWatch

Indonesia's central bank will leave its benchmark interest rate unchanged at 3.50% on Thursday, but more than a quarter of economists in a Reuters poll expect a rate hike to curb imported inflation due to the weak rupiah currency as the U.S. Federal Reserve aggressively tightens.

Indonesia's central bank is one of the few major Asian central banks that has not raised interest rates from a pandemic record low as inflation is within its 2% to 4% target range.

But a 75 basis-point rate hike by the Fed last week and the prospect of more aggressive moves in the coming months sent the rupiah plunging 2%, its worst weekly performance in nearly three years.

Still, 23 of 32 economists in the latest survey conducted June 13–20 predicted the central bank would leave its benchmark rate at a record low of 3.50% for seven days at its June 22–23 meeting.

However, a significant minority, 9 out of 32, expected the central bank to join other Asian countries in raising rates by 25 basis points, to 3.75%.

The currency of Southeast Asia's largest economy has fallen nearly 4% this year, half of that in the past week, fueling concerns about imported inflation in a country of more than 270 million people.

Until recently, price pressures have been relatively tame. But rising global energy and food prices have pushed inflation near the upper end of the central bank's inflation target, reaching 3.55% in May, the highest level in more than four years.

Gov. Perry Warjiyo acknowledged at the May meeting that inflation would rise above the target band this year but predicted a slowdown next year.

The central bank, which meets monthly, will begin its rate hike cycle next quarter, raising rates by a total of 50 basis points by the end of the third quarter