MNI BI Preview – August 2022: Last Dove Standing In Emerging Asia

EXECUTIVE SUMMARY

• Bank Indonesia will likely keep the 7-Day Reverse Repo unchanged at the record low of 3.50%, defying peer pressure amidst the global tightening campaign. Recent comments from senior officials unambiguously point to their preference to wait with inaugurating the tightening cycle until there are clear signs of a pick-up in core inflation.
• While headline inflation has breached the target range, core CPI growth remains below the mid-point of the +2.0%-4.0% Y/Y target range. This gives policymakers some more time until the sequence of staggered RRR increases is completed by the time they meet again in September.
• It is likely that the key policy rate will be raised next month as fiscal authorities are debating ways to scale back subsidies further down the line, higher global interest rates weigh on the attractiveness of Indonesian assets, while supply-side price pressures threaten to spill over into inflation expectations and wage setting behaviour.

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