Bank Indonesia likely to call for a final rate hike of 25bps in June monetary policy meeting, says ANZ Research

Bank Indonesia (BI) is expected to call for a final rate hike of 25 basis points in its June monetary policy meeting, according to the latest report from ANZ Research. Headline inflation has remained below the mid-point of the central bank’s target band in each month this year, confirming that the objective of the recent policy tightening is to stabilize the IDR and not inflation management.

Owing to the commencement of the Ramadan fasting season from mid-May, headline inflation quite predictably picked up during the month. The increase itself was more contained m/m than was expected owing to moderate increases in food prices (0.21 percent m/m) and energy costs (0.04 percent m/m).

The rise in energy prices compares with an average of 0.29 percent m/m in the previous four months of 2018. Similarly, utility costs, which include electricity costs, also increased by their slowest pace during the year.

Price changes in other sub-components were in line with recent trends. Core inflation increased by 0.21 percent m/m which though faster than the 0.15 percent m/m rise in April, was still mild. Headline inflation has now remained below the mid-point of Bank Indonesia’s (BI) target corridor of 2.5-4.5 percent in each month this year, confirming that the objective of the recent policy tightening is to stabilize the IDR and not inflation management.

"To further this objective we still expect one more rate hike of 25bps in June 2018, following which BI should be able to comfortably revert back to a neutral policy stance," the report added.

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