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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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Free AccessMNI INSIGHT (CORRECTED): Bank Indonesia Eyes H2 Rate Hike
(Corrects to add dropped word, not, in sixth paragraph)
Indonesia’s central bank is forecasting higher growth and inflation as conditions combine with the likely impact of tightening policies from developed world central banks to drive a likely rate rise later this year, MNI understands.
Bank Indonesia last week kept its benchmark seven-day repo rate unchanged at 3.5%, and MNI the central bank expects to respond to a changing environment later this year with its first rate increase since 2020, see: MNI STATE OF PLAY: Indonesian Inflation Points To Tightening.
A SIGN OF STABILITY
February’s no change decision followed a January surprise as BI announced an incremental increase in the rupiah reserve requirement for commercial banks, beginning with a 1.5% increase to 5% from March and another 1.5% by September.
MNI understands that BI sees this primarily as a measure to ensure stability in the banking system rather than a tightening of policy through limiting bank liquidity.
PRICES, RUPIAH, BONDS
BI is also preparing for inflation to pick up, again in the second half of this year after rising to 2.18% in January. This is in the low end of the central bank’s target range of 2% to 4%.
While BI is prepared for the US dollar to appreciate as the Fed hikes rates, it does not believe momentum for this will be as strong as in the past and for that reason is sanguine both on the prospects on the volatility of the rupiah and the stability of Indonesian government bonds.
BI directly purchased around USD60 billion in government bonds as a key policy in its pandemic response. MNI understands there are no current plans to sell any of these bonds ahead of maturity.
The most important data for BI in coming months will be inflation, which it expects to rise as the economy recovers after fourth quarter growth came in at 5.02% for 2021 growth of 3.69%. 2022 growth is expected to be between 4.7% and 5.5%.
The rupiah is currently stable at around 14,350 against the USD and MNI understands the mood at BI is upbeat as it focuses on preparing the resilience of the financial system for potential volatility later this year.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.