BI Preview: Forecasts from four major banks, slowing the pace of rate hikes in December

Bank Indonesia (BI) will hold its monthly governor board meeting on Thursday, December 22. Here you can find the expectations as forecast by the economists and researchers of four major banks regarding the upcoming central bank's rate decision.  

BI is expected to hike rates by 25 basis points (bps) to 5.50%. At the last meeting on November 17, the bank hiked rates by 50 bps to 5.25%.

Standard Chartered

“We expect BI to hike the 7-day reverse repo rate by 25 bps to 5.5%, following three consecutive 50 bps hikes. With inflation on track to return to BI’s inflation target, we think interest rates will be calibrated to respond to Fed hikes, which have pressured the IDR; BI said it expects December inflation to ease further to 5.2% from 5.4% in November. While pressure on the IDR may ease with diminishing USD strength, a Fed pivot, and the unwinding of foreign investors’ underweight positioning, BI may need to keep the policy rate flat for the rest of 2023 to strengthen monetary policy transmission. We expect another 25 bps hike in January, taking the policy rate to 5.75% by end-2023.”

ING

“BI will likely hike by 25 bps. BI will need to sustain rate hikes but softer-than-expected headline inflation could mean that the central bank also slows the pace of its tightening. BI may also need to hike rates to support the rupiah which has faced some pressure after the recent strong support provided by sterling export growth appears to be fading fast.”

TDS

“BI may opt for a step down in its hiking pace to 25 bps as inflation has peaked and is moderating. BI Governor Warijyo's comment that inflation expectations are ‘coming down rapidly and nearing BI's goal’ also suggests to us that BI is likely to end its front-loading policy stance.”

SocGen

“We expect BI to announce a rate hike of 25 bps to take the year-end policy rate to 5.50%. With inflation clearly having peaked and showing signs of moderation, vs our earlier expectation of further strengthening, we see the central bank approaching the end of its current rate-hike cycle. We expect BI to make one final hike of 25 bps at its meeting in January before bringing the cycle to an end.”