Indonesia Monetary Policy May 2022

Indonesia

Indonesia: Central Bank holds fire in May

May 24, 2022

At its monetary policy meeting on 23–24 May, Bank Indonesia (BI) again decided to leave the seven-day reverse repo rate at the all-time low of 3.50%, despite rising price pressures and other tightening cycles in the region. That said, the Bank raised rupiah reserve requirements for commercial banks and shariah banks.

Echoing the BI’s move in April, the decision to leave the main rate unchanged reflected a prioritization of supporting economic growth and exchange rate stability over price stability. Although inflation has hit record-high figures in recent months due to the war in Ukraine and Covid-19 lockdowns in China, the Bank expects price pressures to return to the middle of its target band by 2023. Meanwhile, GDP growth remained stable in Q1, as robust private consumption was offset by a contraction in government spending. High-frequency indicators for Q2 point to an improvement in momentum.

In its latest release, BI did not provide any forward-looking statement regarding future moves but hinted that it will continue its wait-and-see approach as long as economic conditions allow. That said, the majority of our panelists expect the Bank to hike rates slightly in 2022.

Regarding the outlook, economists at Goldman Sachs continue to see the Bank tightening rates by Q3:

“For now, the stable [Indonesian rupiah] and still well-behaved-inflation gives BI some latitude in deciding the pace of domestic policy normalization. However, as the Fed accelerates its hiking pace and inflationary pressures build over the course of the year, we expect BI to tighten policy further. We continue to forecast a cumulative 75 basis points of policy rate hikes this year starting in Q3 2022.”

The seven-day reserve repo rate is forecast to end 2022 at 4.11% and 2023 at 4.7%.


Author:, Junior Economist

Sample Report

Looking for forecasts related to Monetary Policy in Indonesia? Download a sample report now.

Download




Indonesia Economic News

More news

Search form