UOB Group’s Economist Enrico Tanuwidjaja comments on the latest interest rate decision by the Bank Indonesia (BI).

Key Takeaways

“Bank Indonesia (BI) delivered its third series of a 50bps rate hike in Nov MPC meeting, in line with market expectation, to 5.25%.”

“BI said that the decision is a front-loaded, preemptive, and forward-looking step to anticipate and mitigate the risk of rising inflation and anchor inflation expectations to remain within the 2-4% range in 1H23.”

“Going forward, we revised and brought forward our BI rate forecast to 5.50% (previously 5.25%) by the end of 2022 and revised higher the terminal rate to 6.00% (previously 5.75%) that is likely to occur in Feb 23. This will give a reasonably comfortable yet historically tighter spread of circa 100bps with the expected terminal rate of the Fed funds rate of 5.00% by 1Q23.”