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Free AccessMNI STATE OF PLAY: Bank Indonesia To Set Policy Views Tighter
Indonesia’s central bank goes into a two-day meeting this week with growing confidence that the economy can continue its recovery in 2022, even with the scene is being set for monetary tightening later this year.
Consumer confidence is returning as vaccination rates increase, and a fall in foreign debt combined with a stable currency and benign inflation take the pressure off Bank Indonesia for immediate policy changes on Thursday, giving it time to wait on domestic conditions and the actions of the U.S. Federal Reserve, see: MNI INTERVIEW:Some Volatility Healthy During QT - Fed Economist.
Key to BI’s outlook for 2022 will be the actions of the Fed, as higher US interest rates will impact the attractiveness of the Indonesian bond market in which foreign investors are major participants and will also likely influence the rupiah.
BI Governor Perry Warjiyo has called out all these elements for the 2022 outlook, but the Board of Governors is likely to consider that any policy action can wait until later in the year.
STEADY RATES, MACRO CONDITIONS
Bank Indonesia’s benchmark interest rate was held at the record low of 3.5% throughout 2021 after 150 basis points of cuts in 2020, while the bank also embarked on a USD87 billion programme of quantitative easing, buying bonds directly from the Indonesian government.
BI has a target range of 2% to 4% for inflation. The January forecast is for inflation at 0.58% and an annual rate of 2.2%. At the end of 2021, inflation was under 2%.
Retail sales grew by double digits in November and are expected to grow by 8.9% in December, and the consumer recovery is expected to be a major driver of growth, with BI forecasting the economy will grow by between 4.7% and 5.5% 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.