Indonesia: Central Bank stands pat in July
At its monetary policy meeting on 20–21 July, Bank Indonesia (BI) decided to leave the seven-day reverse repo rate at the all-time low of 3.50%—where it has been since February 2021—in line with market expectations.
Despite a near seven-year high inflation reading in July, driven by higher prices for energy, the Bank assessed that core inflation remained within expectations. Meanwhile, high-frequency indicators hinted at sustained growth at home in Q2, while elevated commodity prices bolstered exports. As such, the Bank opted to take a wait-and-see stance, but acknowledged that rising price pressures and inflation expectations threatened the economy.
In its communique, the BI committee gave no forward-looking statement regarding its future decisions. Nonetheless, the majority of our panelists expect the Bank to hike rates by at least 50 basis points by end-2022.
Commenting on the release, Nicholas Mapa, senior economist at ING, remarked:
“We had expected a rate hike from BI today after other regional central banks tightened last week but given Indonesia’s projection for its current account, the Bank could be on hold for just a little longer. BI Governor Perry Warjiyo previously hinted that the projected rate hike from the central bank would only be triggered by core inflation and we will be monitoring how quickly price pressures build up in the coming months.”
The next meeting will be held on 22–23 August.