Indonesia: BI delivers another 50 bps rate hike – UOB

UOB Group’s Economist Enrico Tanuwidjaja reviews the latest interest rate decision by the Bank Indonesia (BI).

Key Takeaways

“Bank Indonesia (BI) delivered a back-to-back 50bps rate hike in Oct MPC meeting, in line with market expectation, to 4.75%.”

“BI said that the decision is a front-loaded, pre-emptive, and forward-looking step to anticipate and mitigate the risk of rising inflation and anchor inflation expectations to remain within the 2-4% range in 1H23.”

“Going forward, we revised and brought forward our BI rate forecast to 5.25% (previously 5.00%) by the end of 2022 and revised higher the terminal rate to 5.75% (before 5.50%) that is likely to occur in 1Q23. This will give a reasonably comfortable yet historically tighter spread of circa 100bps with the expected terminal rate of the Fed funds rate of 4.75% by 1Q23.”