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Moody’s Analytics expects BI rate hike in Q2
Moody’s Analytics expects Bank Indonesia to increase its benchmark interest rate in the second quarter of the year, despite the central bank’s assurance that no such move would happen until inflation picked up.
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The head offices of various banks are pictured on the Jakarta skyline on Aug. 27, 2021. (AFP/Bay Ismoyo)
M
oody’s Analytics expects Bank Indonesia (BI) to increase its benchmark interest rate in the second quarter of the year, despite the central bank’s assurance that no such move would happen until inflation picked up.
Its surprising decision last month to rein in commercial bank lending signaled that BI was “looking to reduce risk in the financial system and prepare the groundwork for rate normalization,” Moody’s Analytics associate economist Gabriel Tay wrote in a statement published on Wednesday.
The financial intelligence provider said, meanwhile, that it expected no rate change from BI’s monetary policy meeting this week, suggesting BI’s seven-day reverse repurchase rate will remain at a record low 3.5 percent when the central bank makes the announcement on Thursday.
“The move to tighten the reserve requirement ratio suggests BI is under mounting pressure in the face [of] monetary policy divergent risk. The [United States Federal Reserve’s] Federal Open Market Committee’s January meeting effectively turned up the heat when it teed up the potential for the first increase in the fed funds target rate to land as early as March,” the statement explains.
It noted that BI had to “manage a delicate balancing act in 2022” as it would not want foreign investment to drain out of the country when the US hiked rates. “On the other hand, it needs to keep rates low to safeguard Indonesia’s recovery momentum.”
At its January policy meeting, BI made no changed to either its benchmark interest rate or the deposit or lending facility rates.
[RA:Bank Indonesia holds benchmark rate at 3.5%::/business/2022/01/20/bank-indonesia-holds-benchmark-rate-at-3-5.html]
