Bank Indonesia Hikes Key Rate By 25bp, Matching Expectations

Bank Indonesia met expectations as it raised the 7-Day Reverse Repo Rate by 25bp to 5.75%, in line with the consensus call. The decision was announced minutes after neighbouring Malaysia unexpectedly left its policy rate on hold.

• Governor Warjiyo noted that "the more calculated decision on policy rate increase is a follow-up step to ensure continued lower expected inflation and inflation in a front-loaded, pre-emptive, and forward-looking measure."
• The decision highlights Bank Indonesia's determination in bringing inflation under control, despite taking a relatively dovish stance at the start of the global rate-hike cycle.
• Bank Indonesia reaffirmed its 2023 forecasts, noting that it sees GDP growth around the mid-point of a +4.5-5.3% Y/Y range, with inflation expected to return to the +2%-4% Y/Y target in 2H2023.
• Warjiyo said the rupiah draws support from the economic recovery, which is reducing import costs and thus creates a drag on headline inflation. He tipped hat to the return of investors to emerging markets.
• Spot USD/IDR and USD/IDR 1-Month NDF have shown a limited reaction to the in-line decision of Indonesia's central bank.