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MNI BI Preview – September 2022: Energy Subsidy Cut Means More Rate Hikes To Come

EXECUTIVE SUMMARY

  • Bank Indonesia is expected to raise the 7-Day Reverse Repo by another 25bp after unexpectedly inaugurating its rate-hike cycle last month to pre-empt the impact of a planned increase in fuel prices.
  • Although headline inflation eased off last month, it remains above the target range and is set to accelerate on the back of a fuel price increase, which saw the price of Petralite rise by more than 30%. Core inflation, which is closely monitored by Bank Indonesia, crossed above the mid-point of the target range, signalling that domestically driven price pressures are strengthening.
  • The rupiah has been more resilient than most of its regional peers as the greenback has appreciated amid the Fed's aggressive tightening campaign. Furthermore, having benefited from the global commodity boom, Indonesia is relatively well placed to tighten monetary conditions in a gradual manner.

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