MNI Bank Indonesia Preview - April 2023: BI On Hold, Cuts Some Way Off

EXECUTIVE SUMMARY:

• Bank Indonesia (BI) is highly likely to keep rates at 5.75% for the third consecutive month when it announces its decision on 18 April. This expectation is unanimous amongst the 29 forecasters surveyed by Bloomberg. With the currency appreciating and core inflation returning to the mid-point of the ±3% target band in March plus the tone of the March statement, there isn’t a driver for BI to do anything else.
• BI believes that the current interest rate is sufficient to contain inflation and inflation expectations and to bring it back to the target band. Core returned to just below the mid-point of the range in March posting a 2.9% increase down from 3.1%. Headline is projected to return to target in H2 2023, helped by base effects. It moderated to 5% in March from 5.5%.
• It appears that BI is now on hold for the foreseeable future and that 5.75% is the peak in rates this cycle. If BI has stopped tightening, then the question is when will it begin to ease policy? Given that it doesn’t expect headline inflation to reach target until H2 2023 and it is predicting stronger domestic demand, then any rate cuts will probably be deferred into 2024.

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BI Preview - April 2023.pdf