MNI STATE OF PLAY: Rate Hike On Indonesia CB Agenda For 2022

Strong retail sales data for November has put a 2022 interest rate hike on the agenda for Indonesia’s central bank, but the year is expected to end on a steady note when the Board of Governors meets this week.

November retail sales increased 10.1% year on year and are now back to pre-Covid-19 levels, and Bank Indonesia’s consumer confidence level spiked again in November.

BI Governor Perry Warjiyo has ruled out a 2021 rate rise several months ago, and the central bank has held its benchmark interest rate steady at the record low of 3.5% after 150 basis points of cuts in 2020, see: MNI STATE OF PLAY: Bank Indonesia Upbeat On The Economy, Rupiah.

SWEET SPOT, RUPIAH

Indonesia’s economic recovery is now in a sweet spot with inflation contained at an annualized 1.75% for November, below the 2% to 4% BI target range.

Strong commodity prices and exports are continuing to keep the rupiah stable, with the unit tracking below 14,500 to the USD for most of this year. Third quarter GDP growth was disappointing, at 3.51%, but with more than 200 million vaccinations administered throughout the nation the economy is seen as placed to continue to rebound in the final quarter and into 2022.

Any rate rise, however, is seen as either in the third or fourth quarter of 2022.

The interest rate decision from the Board of Governors will be announced Thursday afternoon in the Asian time zone.