Economist at UOB Group Enrico Tanuwidjaja reviews the latest interest rate decision by the Bank Indonesia (BI).

Key Takeaways

“Bank Indonesia (BI) kept its benchmark rate (7-Day Reverse Repo) unchanged at 3.50% at its May MPC meeting. Consequently, BI maintained the Deposit Facility rate at 2.75% as well as the Lending Facility rate at 4.25%.”

“The policy of liquidity normalisation will be accelerated through a gradual increase in Reserve Requirement (RR) for Conventional Bank from the current 5% to 6% starting on 1 June 2022, and further to 7.5% starting on 1 July 2022 and to 9.0% starting on 1 September 2022.”

“We keep our view for BI to start hiking in mid-2022, with two 25bps hikes in 3Q 2022 to 4.00%, followed by another two 25bps hikes in 4Q, taking its benchmark rate to 4.5% by the end of 2022.”