Bank Indonesia Expected to Raise Interest Rate After Fed Rate Hike

TEMPO.CO, Jakarta - The US' central bank, The Federal Reserve System or The Fed, announced a 50-bps hike of the Fed Funds Rate (FFR) to 0.75 to 1.00 percent. The Fed also anticipates continued gains in that target range.

Bank Mandiri (IDX: BMRI) economist Faisal Rachman predicted that Bank Indonesia (BI) will follow suit by raising the BI-7DRRR by a total of 75 bps to 4.25 percent this year.

Faisal said that, as expected, the Fed is being more hawkish amid increasing pressures of inflation. However, Bank Mandiri believes that BI will not rush to raise its rates.

"We are still hoping that BI would start raising the BI-7DRRR in the second half of 2022," Faisal said in an official statement, Thursday, May 5.

According to Faisal, BI will maintain financial stability by increasing the reserve requirement ratio (RRR) first, followed by a cut in quantitative easing, before adjusting the BI-7DRRR. Therefore, for the first half of this year, Faisal hopes that BI will maintain the BI-7DRRR at its current level.

Faisal said that the timing of a BI rate hike will depend on Indonesia's own domestic inflation, which is expected to increase fundamentally and substantially in semester two.  According to his observations, BI will continue with its macroprudential measures to remain accommodative in 2022 for the sake of economic growth.

BISNIS