Enrico Tanuwidjaja, Economist at UOB Group, assesses the recent BI interest rate decision.

Key Takeaways

“Bank Indonesia (BI) kept its benchmark rate (7-Day Reverse Repo) unchanged at 3.50% at its June 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 has been accelerated through a gradual increase in Reserve Requirement (RR) for Conventional Bank from the current 5% to 6% starting this month, and further to 7.5% starting next month and to reach 9.0% starting on 1 September 2022.”

“We keep our view for BI to start hiking in 2H22, 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.”